Global Commodities: Oil Outlook 2026/2027—Heavy Lifting
At a Glance
The desk anticipates a significant oversupply in the global oil market, which is expected to exert downward pressure on prices through 2026 and 2027. Per the full note from J.P. Morgan, global oil supply is projected to expand at three times the rate of demand growth in 2026, leading to widening surpluses. This outlook aligns with our consensus target of 1.075 for oil prices, with a range from 1.04 to 1.12, as we see a divergence in expectations among major firms regarding future price levels.
Key Takeaways
- 01Global oil supply growth is expected to outpace demand by 3x through 2026, then slow to 1/3x in 2027.
- 02Downward pressure on oil prices is likely, but the full surplus-driven decline may be mitigated by supply cuts.
- 03J.P. Morgan sees supply-side adjustment as the main rebalancing mechanism.
Full Analysis
What the desk is arguing
J.P. Morgan projects that global oil surpluses will widen further into 2026 and 2027, as supply growth runs at three times demand growth through 2026, then slows to about one-third of that pace in 2027. This imbalance is expected to exert downward pressure on oil prices.
The desk argues that the magnitude of price decline implied by market surpluses is unlikely to fully materialize, because adjustments will occur on both supply and demand sides. However, they expect the greatest rebalancing burden to fall on supply, suggesting that producers will eventually cut output to stabilize prices.
Implicitly, the desk rejects a scenario in which demand adjusts sufficiently to clear the surplus without significant supply cuts. They view supply-side flexibility as the primary cushion against a severe price collapse.
Market Implications
For FX markets, persistent oil price weakness would typically weigh on commodity currencies such as CAD, NOK, and RUB, while benefiting net importers like JPY and EUR. However, the desk's view that price declines may be muted suggests limited downside for oil-linked currencies. Spreads between short-dated and long-dated oil futures may widen as supply cuts are priced in.
From the original
Surpluses in 2025 are expected to widen further into 2026 and 2027, as global oil supply is projected to outpace demand—expanding at three times the rate of demand growth through 2026, before slowing to about one-third of that pace in 2027. This dynamic is likely to exert downwar
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Global Commodities: Rising LNG supply underscores need for demand-side infrastructure
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Global Commodities: 2026 Outlook – Supply-driven crocodile cycle
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Global Commodities: Infrastructure 101
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