Global Commodities: Oil Outlook 2026/2027—Heavy Lifting
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.
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.
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.
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.
Risks to this view
Upside risk: Geopolitical supply disruptions or OPEC+ deeper-than-expected cuts could tighten the market, pushing prices higher than the desk's bearish baseline. Downside risk: Demand growth could slow more sharply than projected (e.g., due to a global recession), exacerbating surpluses and causing a steeper price decline.
Hello, and welcome to another episode of At Any Rate. I'm your host, Greg Scheer, and I head J.P. Morgan's metals research.
Today we'd like to discuss our outlook on oil for 26 and 2027. I'm joined today by Natasha Kanova, our head of global commodities and oil research. Welcome, Natasha.
Thank you for having me, Greg. If we jump right in, crude prices have declined 19% this year, and at $61 today, are near their lowest levels in almost two months, a sharp contrast to the prevailing bullish sentiment in broader financial markets. Year-to-date, crude has averaged $68 per barrel, a significant drop from the $80 average seen in 2024.
Natasha, what factors are driving this weakness in crude? Yes, Greg. So, at the risk of flogging a very dead horse, our message to the market has remained pretty much consistent since mid-2023, and the message is that while demand is good, supply is simply too abundant.
Already, then, in 2023, it was increasingly evident that the elevated oil prices of 21 and 22, as you remember, Brent averaged $100 in 2022, and those prices achieved their intended effect. So, they spurred a significant supply response from U.S. shell producers. Meanwhile, the timeline for large-scale deepwater developments in the Atlantic basins in countries like Brazil and Guyana resulted in a surge of offshore supply that would hit the markets in 2025.
So, as the post-pandemic surge in demand began to normalize, and supply growth accelerated on both sides, already in 2023, we're pointing to a pronounced market surplus in 2025, especially in the second half of 2025, likely pulling oil prices down into the 60s range by year-end. So, with non-impact supply more than sufficient to meet global demand growth, the lines found itself with limited options in 20, pretty much in 2023 and in 2024, compelled to maintain production cuts in an effort to balance the market. So, nevertheless, we have argued that persistent surpluses will ultimately force the group to make a strategic choice between further surrendering market share to support prices or maintaining and potentially increasing production levels in order to maximize revenue.
And so, the latter path, however, would almost certainly usher a prolonged period of depressed oil prices. And so, where we stand today, pertaining to your questions and the observations over the past two and a half years, you have largely validated our original thesis. So, demand defied widespread bearish sentiments, so it consistently exceeded expectations, including this year, especially in the United States, yet supply can outpace these gains by more than two-fold with the bulk of growth coming from the Americas.
So, the latest data, when we take a look at the inventories and the pricing, so all that confirms that the long-awaited surplus is finally materializing. So, what we're watching is that the narrowing WTI and Brent time spreads, surge in oil and water, the normalization and OCD crude and product inventories. So, here today, we're tracking an inventory built of almost 1.6 million barrels per day, which has put downward pressure on the crude prices, and you're absolutely correct.
Crude prices are down almost 19% so far this year, which makes it one of the worst-performing major commodities. Okay. So, that's 2025.
Decent demand, but too much supply and an oversupply pressuring prices. If we look to next year, what's the outlook for 26 and even 27? Yes.
In a nutshell, you're absolutely correct. So, the outlook for the next two years, as at its core, is a matter of basic arithmetic. So, demand is good.
So, we have demand growing about 0.9 million barrels per day this year. So, in terms of absolute levels, it's about 105.5. We see similar gains in 2026, and then growth accelerating to about 1.2 million barrels per day in 2027.
Yet, taking a look at the supply growth, we believe that production will outpace demand, expanding at three times the rate of consumption in both 2025-2026, before moderating to roughly one-third of that pace in 2027. So, on the production side, we're watching two major sources of supply. The offshore developments, and we introduced a new term, Greg, in this outlook, we call it the global shale.
So, taking a look at the offshore sector, so once it was considered cyclical, cost-intensive, but now it has transformed into a dependable, long-term driver of non-OPEC oil supply production. So, it's set to deliver about 500 kB of growth this year, and then almost a million barrels per day in 2026, about 400 in 2027. Why is it so important?
First of all, it's a large scale. Let's just look at the numbers. Number two, it's positioned at the very low end of the global cost curve.
So, this is the production, once built, it's very, very cheap. And the third reason we have been flagging that, again, since 2023, is that we have an exceptional visibility of the new offshore barrels, which makes the future completions highly assured. Why?
Because both the producer in Exxon in Guyana and Petrobras in Brazil, they give us a very, very good visibility exactly what they're going to do over the next five years. So, all those FPSOs through 2029 have been already sanctioned, they're being built, they're being delivered, so we see exactly what production is coming from. Global shale, this is a term that, as I said, we just introduced a couple of weeks ago.
So, usually the focus is always on US shale growth. It's slowing, but at the same time, productivity, capital efficiencies continue to underpin this global supply flexibility. But outside the US, we've waited for the President Millet's midterm victory, and so, hence, we're now talking about global shale instead of the US shale.
And so, the reform agenda in Argentina have shifted the outlook for Argentina's oil and gas sector, where the giant Vaca Muerte shale play has emerged as a dynamic new frontier. It's scalable, it's low cost, it's increasingly integrated with export infrastructure. We advise clients to pay a lot of attention that is happening in that particular area of the world.
So, that pretty much unlocks steady production gains, about 120, 150 kBit over the next two years. That's not much, but at the same time, if you focus on Vaca Muerte, the quality of the rock there is better than in the Permian. And so, because of that, it helped the producers push break-even costs even lower than their US rivals on average.
So, for example, Vaca Muerte produced about 550 kBit in September, but it's projected to exceed a million barrels per day within the next five years. So, overall, global shale delivered about 800 kBit of growth in 2025. Our price target for next year is 55 WTI, yes, 58 Brent.
What that means is that combined, those volumes are projected to increase by only 400 kBit in 2026, additional 527. And so, and then, you know, on top of that, you have Canada. So, when we put all of that together and take a look at our demand, so what that means is that global observable inventories have surged by about 1.6 million barrels per day so far this year.
Granted, the bulk of the bill, it's about a million barrels per day, comprises oil and water and stocks in China. However, similarly to the way, Greg, you trade aerospace and metals, we do not discriminate against the location and the inventories, just as long as we can see them. We treat them as a net addition to the global supply that will carry towards a forward into 2026.
So, what is important is that when we look at our numbers and the balances, what that means is, you know, very big surplus in both 2026 and 2027, under this condition, Brent oil prices could slip below $60 in 2026, in the low 50s by the final quarter and close the year with a $4 handle with the situation worsening into 2027. So, but again, you know, looking at those price levels and the magnitude of the imbalances suggests that they are unlikely to fully materialize in practice. So, we do expect adjustments in both the supply and demand side.
However, the greatest burden of rebalancing will almost certainly fall in supply. Thanks, Natasha. And I guess I want to drill down on that part a little bit more, because it seems like a big part of this analysis is, are these involuntary adjustments that you were mentioning on both demand and supply.
Can you quantify what you're exactly expecting there? Yes, Greg. So, it's what the same you do in metals.
Yes, it's where the circular reference starts kicking in, in your model when, you know, when the prices drop or for that matter, if they increase substantially, yes, you start adjusting immediately both supply and the demand side of the equations. So, starting with the demand, by late 2026 and especially through 2027, we believe that the low oil prices would begin to stimulate demand. So, our numbers are showing that this anticipated decline in oil prices from $65 this year to $50 expected to increase global oil demand by about 500 KBD.
So, and that's what lifts our 2027 demand to by about 1.3 million barrels per day growth. So, where do we expect that? It's gasoline and jet fuel consumption, especially in price sensitive regions like Asia and Africa and during the peak travel seasons in the US and Europe.
So, on the supply side, more work is needed just because there's just significantly more suppliers. So, we do believe that prices below $50, if they get to those levels, they will inevitably lead to production shut-ins across the non-OPEC producers as margins compressed to zero. Usually, you know, the first thing people pay attention to, it's exactly what is happening at those price levels in the US.
Yes, the US break-even point for US shale sits at around $47 WTI, that assumes zero returns. So, at this level, operators are unable to generate sufficient cash to sustain drilling and completions and that results in the decline in production. So, the declines are actually pretty mild if the WTI drops below $47.
So, even at $40 WTI, we believe that production declines by only about 400 KBD. If the prices go into the $3 handles, as could happen in 2027, then that's the numbers that you're seeing, you know, close to almost a million barrels per day, which would bring the US crude and condensate supply to 12.6 million barrels per day. That's the level back in early 2023, which we believe is unattainable to the US administration.
So, another country of watching closely is Russia, which becomes vulnerable at this price levels. So, we estimate Russia's cash cost of production, which includes transport and taxes, but excludes CapEx, it's at roughly $42, meaning that once Brent trades materially below this level, operators would face negative margins even before reinvestment. So, in practice, we do believe that Russia would try to maintain headline production, but the prolonged Brent price is at below $45 on top of those widening discounts for Urals and Espoo because of the sanctions would likely result in forced well shut-ins, reduced drilling, accelerated declines.
Canada is another part, you know, another country we're watching, especially with the Canadian oil sands projects, it's up $50, deferred maintenance, fewer well pairs, slow down in brownfield expansions, all of that could remove about 150 KBD over 12, 18 months. Colombia is another country which has a lot of high cost production. Ecuador, another one.
And, you know, of course, Argentina, it's a shell after all. So, the full cycle cost is about $45, $55, which means at Brent below $50, that would, you know, sharply slow down drilling and completions. And so, the overall number is that the Brent falls below $50 by year in 2026.
The involuntary supply losses could reach almost a million barrels per day in, you know, in about 12 months. Wow. That's really, really fascinating, especially kind of building up from those different regions with the different supply curves.
If we think broadly here, I just want to check my understanding. Your argument is essentially that we have a market here that will find equilibrium through a combination of rising demand driven by those lower prices, as well as a mix of voluntary and involuntary production cuts like you were just detailing. Hence, at the end of the day, you're forecasting average prices for oil, not that far off from today's levels.
Is that right? Yes. No, it's absolutely correct.
Yes. So, it's just the size of the surplus is so big that it's unlikely to materialize in practice. In our view, demand will react and demand, I think, will react very quickly on the supply side.
As you know, it takes longer, yes, because the producers wait. They say, okay, maybe this is something temporary. Let's see how long it lasts.
Then, let's see who blinks first. So, this is the one that takes much longer time to rebalance the market. So, hence, that's what we're saying is that the biggest weight of rebalancing would have to be on the supply side, but you're absolutely correct in describing the situation.
So, the market will be in equilibrium. So, hence, if you take a look at our price forecast, we maintain our price of $58 Brent. So, for more than a year, we have been sitting on this forecast.
That's 54 for WTI. For 2026, we introduced our 2027 price forecast. That's 57 Brent, 53 for WTI.
However, having said all of that, Greg, while the price is not that far off from today, we're trading at 61 Brent. We believe that to actually stabilize price levels at those levels will require a considerable effort, mostly on the producer side, to be able to stabilize the price at around $60. Well, great.
Thank you for joining me today, Natasha, and walking us through that outlook. And thank you all to listening to another Commodities Edition at JP Morgan's At Any Rate podcast. We look forward to continuing the conversation next week.
This communication is provided for information purposes only. Please refer to JP Morgan Research Reports related to its content for more information, including important disclosures. 2025 JP Morgan Chase & Company, all rights reserved. This episode was recorded on December 12, 2025.