Analysis: Crude Weakness, Fuel Strength to Persist in 2026

VIENNA (DTN) – Given the rapid rise in global supply and tepid demand developments, most observers expect the crude oil market to be oversupplied in 2026. At the same time, refiners are set to continue to profit from the margin boost from low input prices and tight fuel inventories keeping refined product prices elevated. While forecasters’ views on demand and supply growth rates differ, they fundamentally agree on a continuing divergence between crude oil and refined fuels prices.

Crude Oil Balance

The International Energy Agency forecasted a record high glut in the crude oil market in 2026. Rapid supply growth from the Petroleum Exporting Countries (OPEC) and non-OPEC producers alike is expected to clock in at 2.4 million bpd, while global oil demand is likely to rise by just 860,000 bpd, according to the agency, leading to a prognosticated oil-overhang of 3.84 million bpd.

The U.S. Energy Information Administration (EIA), meanwhile, expects demand and supply next year to grow in lockstep, at 1.23 and 1.26 million bpd, respectively. This implies a continuation of the trend observed during most of 2025, when global inventories expanded by at least 1.2 million bpd, and likely up to 2.2 million bpd on average.

OPEC, in contrast, is more optimistic about demand growth, pegging it at 1.38 million bpd next year. At the same time, the producer group sees much less supply from outside OPEC coming online in 2026, roughly 600,000 bpd. While these numbers do not suggest oversupply per se, they would require a drastic improvement in market conditions and few production hikes from the group, given the crude oil overhang last quarter that even OPEC acknowledged in its monthly oil market report for November.

Refined Products

Last month, refining margins soared to multi-year highs, driven by strength in middle distillates. Low inventories and a global refining rut and have throughout the second half of the year provided price support to the middle of the barrel, before a new sanctions’ announcement kick-started a rally in diesel futures, with NYMEX-traded ULSD futures peaking at a five-month high in mid-November.

While product prices have since eased, some underlying fundamentals supporting the divergence between crude and fuel prices are bound to remain. Global refining capacity additions are slowing down, and both the United States and Europe are set to lose refining capacity. EIA forecasts an average WTI spot price of $51.42 bbl next year, a more than 21% year-on-year decline. Wholesale product prices, in contrast, are expected to soften by 8% to 12%.

Refinery closures are also set to drive prices higher in certain regions. The U.S. West Coast will lose another important gasoline producer next year with the planned closure of Valero’s 145,000-bpd capacity plant in Benicia, just months after Phillips 66 shut its Wilmington refinery. Together, these two plants account for 11% of the region’s refining capacity. This is likely to drive gasoline prices on the West Coast higher, bucking the nationwide trend.

Forecast Uncertainties

Moving into 2026, supply risks remained abound in both directions. An end to the Russia-Ukraine war could free up vast amounts of sanctioned Russian barrels, and the cessation of attacks on refining infrastructure ease the tightness in the fuels market, particularly at the middle of the barrel. Failing a diplomatic resolution, the U.S. and the European Union could ramp up sanctions and Ukrainian attacks on refineries intensify. Meanwhile, mounting tensions between the United States and Venezuela carry the potential to jeopardize some 900,000 bpd of global supply.

OPEC’s next steps also carry bullish and bearish risks. The producer group this spring pivoted from a strategy defending price to one of clawing back lost market share from non-OPEC producers by rapidly ramping up production. While OPEC agreed to halt output hikes in the first quarter of 2026, the group’s low break-even prices compared to international competitors and ample spare production capacity still leave the door for rapid supply growth wide open.