Energy Market Outlook 2026 - Oil oversupply and European gas price stabilization

• We expect Brent crude to average $55/b in 2026, gradually declining to $50/b by year-end

• This reflects a persistent supply glut caused by weak demand growth and rising production from OPEC+ and non-OPEC producers

• OPEC+ likely to keep its pause on production increases, aiming to stabilize market amid surplus and declining prices

• China is nearing full storage capacity. This should reduce its stockpiling and hence its support for crude oil prices

• European gas storage at 83%, providing adequate buffer against disruptions and easing geopolitical price impacts

• TTF gas prices forecast to average €30/MWh in 2026, with summer prices falling to €26/MWh

• New LNG production capacity from the US, Canada, and Qatar to reduce tight supply and price volatility

• Geopolitical risks, weather, and industrial recovery remain key factors driving European gas market dynamics

Oil market

Crude oil prices experienced significant ups and downs in 2025, but overall, they showed a downward trend. This trend was driven by changes in supply and demand. On one side, global demand growth remained weak, mainly due to ongoing weakness in China’s economy, along with unexpected shifts in US trade policies, including multiple rounds of tariffs and sanctions, which are yet to fully leave their mark. On the other side, supply increased as both OPEC+ and non-OPEC producers ramped up production. As a result, the market has entered a state of oversupply, though prices have remained relatively stable due to China's stockpiling efforts and geopolitical uncertainties. Looking forward to 2026, we see the glut intensifying with Brent reaching $50 per barrel by year end.

Oil market dynamics

On the supply side, both OPEC+ and non-OPEC producers have been ramping up production. In 2025, OPEC+ reinstated 2.2 million barrels per day (bpd) of voluntary production cuts that were initially removed from the market in November 2023 as part of efforts to stabilize prices. Additionally, the cartel restored 0.4 million bpd from the 1.65 million bpd of extra voluntary adjustments announced in April 2023. This production increase reflects a shift in OPEC+'s strategy to regain market share and was partially seen as a response to President Trump’s calls for lower oil prices. The eight key members of OPEC+ have about 1.2 million barrels per day of their current supply allocation left to restore. However, actual production increases have been lower than anticipated. This is due to some members compensating for earlier overproduction, while others face challenges in ramping up their output. During their last meeting on November 2, the cartel decided to pause additional output increases in the first quarter of 2026, which was widely interpreted as an acknowledgment of the ongoing supply surplus. Delegates cited seasonal slowdown in demand as the reason behind the decision to pause production increases.

Non-OPEC producers have also been increasing their production, reaching record levels in 2025, particularly in the United States, Canada, Brazil, and Guyana. Their output is expected to continue rising in 2026, as shown in the graph below. Non-OPEC producers are set to add 1.6 million bpd and 1.2 million bpd, for 2025 and 2026, respectively.

Meanwhile, the global economy has been impacted by rising US tariffs, which have disrupted trade flows and led to slower-than-expected demand growth, particularly from major consumers like China and the EU. Additionally, the widespread adoption of electric vehicles (EVs), improvements in energy efficiency, and a structural shift away from oil in energy systems have structurally reduced oil demand and growth prospects. These developments are expected to extend along 2026.

All in all, the market has been experiencing an oversupply throughout 2025. This was widely acknowledged by the main agencies, such as the International Energy Agency (IEA) and the Energy Information Administration (EIA) as well as research from BloombergNEF (BNEF). All three consistently raised their surplus estimates throughout the year. The IEA projected a surplus of 1.9 million bpd, while the EIA estimated 1.7 million bpd, as shown in the graph on the right. Looking ahead to 2026, the IEA expects the surplus to grow significantly, reaching a record 4 million bpd. The EIA projects a smaller increase, estimating 2.1 million bpd, while BNEF provides a middle-ground forecast of 3.3 million bpd.

Despite these developments, crude oil prices have remained relatively elevated, with Brent crude trading above 62 USD/b. A key reason for this is China's stockpiling, which has absorbed much of the surplus at a rate of 0.53 to 0.9 million bpd. China's crude oil storage capacity, including both strategic petroleum reserves (SPR) and commercial storage, is estimated to be between 1.5 and 2 billion barrels. This includes underground facilities, tanks, and other storage infrastructure. So far, China has accumulated roughly 1.2 billion barrels, equivalent to about 70% of its storage capacity. This accumulation is highest in years, as illustrated in the right chart below. The graph further show a slowdown in the stocking rate for September. Chinese crude imports come from several suppliers, with Russia and Iran being top on the list (see right figure below), where China benefited from large discounts due to western sanctions on the two OPEC+ members.

Geopolitical risks have played a key role in supporting oil prices. Attacks on energy infrastructure in Russia and Ukraine, along with new Western sanctions on major Russian oil producers, have increased uncertainty around Russian oil supplies. In particular, the attacks on Russian infrastructure have reduced the country’s oil refining capacity by an estimated 500,000 barrels per day (bpd), causing domestic fuel shortages and a drop in product exports. The new sanctions add further unpredictability, with their impact depending heavily on the actions of key buyers like India and China. Russian oil production accounts for approximately 9% of global supply, but any reduction in output is expected to be offset by increased production from other OPEC+ members. However, Russia has so far managed to circumvent previous sanctions, with its crude continuing to reach global markets through the use of shadow fleets.

New sanctions and recent tensions between the United States and countries such as Venezuela, Nigeria, and Iran have further heightened supply uncertainty. These developments have also shifted crude oil trade flows, with more exports from these countries being redirected toward China, as illustrated in the charts below.

On the other hand, prices have been supported by a one-year trade tariff truce agreed upon last week between Washington and Beijing following a meeting between President Trump and President Xi in South Korea. This agreement raises the possibility of a revival in American crude oil shipments to China following comments by President Trump saying that China would buy more US energy as part of a wider trade truce.

Oil market outlook in 2026

In our oil market forecasts, we are making the assumption that the impacts of the new U.S. sanctions on Russia are unlikely to sustain. When imposing them, President Trump stated that they are not intended to be “for long.” Additionally, given Trump’s focus on maintaining low gasoline prices, the sanctions could be eased with even minor progress in peace negotiations with Russia. Furthermore, since the sanctions primarily target the oil companies, Rosneft and Lukoil, rather than imposing secondary sanctions on third parties that engage in business with them, much of the affected oil is still expected to reach the market. However, this will likely occur at a higher cost.

In 2026, as China nears its full storage capacity, it is expected to adopt an active stockpiling strategy, by reducing its stockpiling rate and taking advantage of lower prices. Additionally, as the market glut continues to grow throughout 2026, the influence of geopolitical risks on prices is likely to be muted. Consequently, with the impact of stockpiling on prices weakening, market dynamics will largely depend on OPEC+ decisions. So far, the cartel has been pursuing a strategy focused on reclaiming market share from other producers such as the US, Canada, Brazil, and Guyana. We think OPEC+ will keep halting production increases as prices go further down forcing other producers, with higher marginal cost, to stop their production.

All in all, we anticipate the supply glut—caused by weaker demand growth and increasing supply—to persist throughout 2026, with its impact steadily pushing crude prices lower. We forecast Brent crude to average $58 per barrel in the first quarter of 2026, gradually falling to $52 pb as the glut worsens, and ultimately reaching $50 per barrel by the end of the year, with a year average of $55 per barrel. An overview of our main economic and financial market outlook can be found at the end of this publication.

European gas market

The year 2025 was tough for the European gas market. It began with the end of the transit agreement through Ukraine, which raised concerns about whether Europe could refill gas storage in time for the next winter, especially with high withdrawal rates. Geopolitical uncertainty, driven by the impact of US tariffs on the global economy and trade, added further challenges. The market became highly unpredictable, reacting sharply to adverse weather conditions such as heatwaves, cold spells, slower wind speeds, and cloudy skies. Supply disruptions in pipeline flows and LNG shipments also contributed to the volatility. However, the European Commission’s new summer agreement which allows for more flexibility in meeting storage targets, along with flexible refill paths and adjustments for market or technical challenges, has eased market participants' concerns. Furthermore, the flow in LNG imports on the back of lower competition from Aisa during the summer has helped in the replenishment of the storage stocks to sufficient levels before the start of the heating season. Now that new LNG capacity is expected in 2026, volatility in European gas markets is ceasing and prices are expected to normalize during 2026.

European gas market dynamics

Since the energy crisis in Europe, the EU has prioritized reducing its reliance on Russian energy. To accomplish this, it has made significant investments in renewable energy and increased imports of LNG to compensate for the reduced supply of Russian pipeline gas. In a recent move, the European Union announced a ban on LNG imports from Russia starting in January 2027, one year earlier than originally planned. This ban is part of a larger package of sanctions imposed by the EU in reaction to Russia escalating its attacks on Ukraine. Additionally, the EU Council has approved the rules outlined in the REPowerEU roadmap this week, which is designed to eliminate Europe’s reliance on Russian energy. As part of the plan, Russian gas imports under short-term contracts will be prohibited starting June 17, 2026, with exemptions granted to landlocked countries like Hungary and Slovakia that hold long-term contracts. A complete ban on imports under long-term contracts is set to come into force by the end of 2027.

In recent years, the global LNG market has faced significant pressure due to tight supply, causing European gas prices to fluctuate widely and leading to high costs and uncertainty. However, relief is expected soon. New LNG production capacity from the United States and Canada is set to become available by mid-2026, followed by additional supply from Qatar in 2027, which will help alleviate the strained market conditions.

However, until new LNG production capacity comes online, several factors are expected to influence the LNG markets in 2026. These include the ongoing war in Ukraine and shifting energy demand trends in Europe and Asia. Additionally, the uncertainty stemming from the US-China trade war could impact Chinese LNG demand. Any potential military operations by the US in Nigeria, which supplied approximately 5% of Western Europe’s LNG imports in 2025, could further tighten the already strained LNG market. Furthermore, the European ban on Russian LNG may have negative effects if Russia is unable to redirect its LNG output from the Yamal field—68% of which was exported to Europe last year—to alternative markets, thereby reducing the global LNG supply.

European gas outlook

As Europe enters its final winter before new LNG capacity helps alleviate supply shortages, the storage levels this season will play a crucial role in determining the requirements for refilling storage during the following summer. The EU is entering the winter with its storage at 83% full, which would give the continent a thin but sufficient buffer to face emerging supply disruptions, and mute the impact of other geopolitical developments on prices. ccordingly, gas prices in Europe will remain responsive to emerging factors such as cold weather or weak wind conditions, which increase demand for heating and electricity purposes. Furthermore, we expect the momentum in industrial output growth to improve in 2026, backed by fiscal stimulus from higher defence and infrastructure spending, which would support TTF prices over the year. Accordingly, for the first quarter of this year, we expect TTF gas prices to average around €34/MWh, slightly below seasonal levels. This reflects lower seasonal demand due to a slowing global economy, partly caused by the impact of US tariffs, which are reducing industrial and power generation needs. Prices could fall further if the US-China trade war worsens. Looking ahead into 2026, we expect prices to gradually decrease as new LNG production capacity from the US, Canada, and Qatar comes online, easing the current tight supply situation. By the summer of next year, we expect prices to drop to around 26 EUR/MWh in Q3 leading to an average price of 30 EUR/MWh over 2026.

Our outlook depends on whether the new capacity is delivered on time. Any delays in expanding production, particularly in the US or Qatar, could worsen supply shortages and keep the market tight. An overview of our main economic and financial market outlook can be found at the end of this publication.