Summary of J.P. Morgan Oil Outlook 2026/2027 Industry Overview - The report focuses on the global oil industry, specifically analyzing supply and demand dynamics, price forecasts, and production trends for the years 2026 and 2027 [2][3][72]. Key Points Oil Demand and Supply Dynamics - Global oil demand is projected to grow robustly, increasing by 0.9 million barrels per day (mbd) in 2025 to reach 105.5 mbd, with further acceleration to 1.2 mbd in 2027 [2][72]. - In contrast, global oil supply is expected to expand at three times the rate of demand in 2025 and 2026, leading to a significant surplus [2][72]. - Non-OPEC+ producers will drive half of the supply gains, particularly through offshore developments and shale production [2][72]. Offshore and Shale Production - The offshore sector is anticipated to contribute 0.5 mbd of growth in 2025, increasing to 0.9 mbd in 2026 and 0.4 mbd in 2027, benefiting from low costs and high visibility on new projects [2][72]. - Global shale production is projected to rise by 0.8 mbd in 2025, with further increases of 0.4 mbd in 2026 and 0.5 mbd in 2027, despite a slowdown in U.S. shale growth [2][72]. Inventory and Price Forecasts - Global observable inventories have surged by 1.5 mbd, primarily driven by oil-on-water and stocks in China, contributing to a projected surplus of 2.8 mbd in 2026 [2][72]. - Brent prices are expected to decline below $60 in 2026 and average $42 in 2027, with prices potentially sliding into the $30s by year-end [2][72][24]. Refining Margins - Refining margins are expected to remain elevated, with gasoline cracks averaging $18/bbl and diesel cracks reaching $31/bbl in the U.S. for 2026 [4][72]. Market Adjustments - The report suggests that the market will find equilibrium through a combination of rising demand due to lower prices and a mix of voluntary and involuntary production cuts [2][45]. - A proactive approach to production cuts is recommended to stabilize prices before they decline significantly [27][45]. Geopolitical Factors - The report discusses potential geopolitical risks, including sanctions on Russian and Iranian oil exports, which could impact supply dynamics [26][61]. - Venezuela's political situation is highlighted as a potential upside risk to global oil supply, with the possibility of increased production following a regime change [61][66]. Non-OPEC Supply Growth - Non-OPEC supply is projected to rise by approximately 1.1 mbd in 2026, with significant contributions from the U.S., Brazil, Canada, Guyana, Argentina, and Norway [72][75]. - The offshore sector and shale production are identified as dual engines of growth for non-OPEC supply [72][75]. Conclusion - The overall outlook indicates a challenging environment for oil prices due to abundant supply and geopolitical uncertainties, with a need for strategic adjustments in production to maintain market stability [2][72][45].

Core Insights - The International Energy Agency (IEA) projects a significant increase in global oil supply, with a surplus expected to grow by 2026 due to OPEC+ and non-OPEC+ output increases [1][3] - OPEC+ has agreed to raise production targets, planning to increase output by 137,000 barrels per day (bpd) in October following a decision to unwind supply cuts [2] - The IEA has revised its global demand growth forecast to 740,000 bpd, indicating that supply is outpacing demand, which could lead to an "untenable" increase in global inventories [3][4] Supply Dynamics - The IEA forecasts a rise in global oil supply by 2.7 million barrels per day (mbbl/d) to 105.8 mbbl/d by 2025, followed by an additional increase of 2.1 mbbl/d to 107.9 mbbl/d in 2026 [1] - OPEC+ plans to fully implement a tranche of cuts amounting to 1.65 mbbl/d over the next year, with 2 mbbl/d of cuts still in place [2] Market Conditions - Benchmark crude oil prices have declined, with ICE Brent futures dropping by approximately $2 per barrel month-on-month to $67/bbl [3] - China's stockpiling of crude is contributing to a market condition known as backwardation, where immediate delivery prices are higher than future contract prices [4] Future Considerations - The IEA notes potential market volatility due to geopolitical tensions, trade policies, and sanctions on Russia and Iran, which could impact supply and demand dynamics [5]