EIA Outlook: Rising Supply Expected to Push Oil Prices Down

The latest February Short-Term Energy Outlook (STEO) from the U.S. Energy Information Administration (EIA) paints a mixed picture for fuel markets. Oil prices recently rose due to supply disruptions and geopolitical concerns, but the EIA expects the gains to be temporary. At the same time, diesel demand in the United States is projected to keep growing, reaching record levels by 2027.

Recent Price Increases May Not Last

Oil prices moved higher at the start of the year. Brent crude averaged $67 per barrel in January, up from December, and climbed from $62 to $72 during the month, according to the EIA. However, the agency expects growing global inventories to put downward pressure on prices, forecasting Brent to average $58 per barrel in 2026 and $53 in 2027, down from $69 in 2025.

These increases were largely tied to temporary supply issues. Cold weather reduced U.S. oil production by an estimated 320,000 barrels per day, while power outages, severe weather, and infrastructure disruptions in Kazakhstan cut output by more than 400,000 barrels per day. At the same time, colder temperatures increased fuel demand across the northern hemisphere, adding additional upward pressure.

Beyond weather-related disruptions, geopolitical uncertainty also contributed to market movements. Questions surrounding U.S. policy toward Iran and the risks to oil flows through the Strait of Hormuz added volatility, reinforcing upward price pressure.

The outlook for U.S. crude follows a similar trend. The EIA raised its 2026 WTI forecast to $53.42 per barrel, up from its previous estimate, but lowered its 2027 projection to $49.34 per barrel.

Growing Supply Expected to Push Prices Lower

Looking ahead, global oil production is expected to grow faster than consumption, leading to rising inventories. As supply builds, prices typically face downward pressure. Global oil inventories may increase by an average of 3.1 million barrels per day in 2026, exceeding the build seen in 2025.

However, the EIA notes that some factors may prevent prices from falling further. OPEC+ plans to keep production steady in early 2026, and China is expected to continue adding oil to its strategic reserves, which provides ongoing demand support. In addition, evolving export conditions in Venezuela could increase global supply and further downward pressure prices, depending on how policies develop.

Global Fuel Demand Continues to Expand

Despite expectations for lower prices, global fuel demand is still increasing. The agency projects that global liquid fuels consumption will grow by 1.2 million barrels per day in 2026 and by 1.3 million barrels per day in 2027.

Most of this growth is expected to come from non-OECD countries, particularly in Asia. China and India are projected to account for a significant share of the increase as their economies and transportation needs expand.

Production is also expected to grow, though at a slower pace than in recent years, driven largely by countries outside OPEC+.

U.S. Diesel Demand Expected to Reach Record Levels

The EIA forecasts that U.S. distillate fuel consumption - including diesel, renewable diesel, and biodiesel - will increase by about 2% in both 2026 and 2027, reaching record highs by 2027.

This growth reflects increased economic activity. As manufacturing expands and more goods move through supply chains, demand for diesel-powered trucks and equipment rises. At the same time, renewable diesel and biodiesel production are expected to grow, helping meet part of that demand as renewable fuel requirements support increased output.

Unlike diesel, gasoline consumption is expected to decline. Gasoline would decrease by about 1% in 2026 and continue to decline in 2027. Improvements in vehicle efficiency allow drivers to travel farther while using less fuel, reducing overall gasoline demand. Jet fuel, however, continues to recover, with consumption set to increase by about 1% per year through 2027, supported by continued growth in air travel.