By Avi Salzman

Oil prices could fall by more than 18% from today's levels in 2026, the government said in its first forecast of 2026 supply and demand. But natural-gas prices are on the way up and could average $4 per million British thermal units in 2026, almost double their 2024 levels.

The Energy Information Administration said that oil demand is likely to rise at a slower rate in 2025 and 2026 than it did in the years before the pandemic, leading to a supply glut that could pull prices lower. Brent crude, the international benchmark, trades today around $80 per barrel, but could average $66 in 2026.

The EIA thinks that U.S. production could average 13.5 million barrels a day in 2025, 300,000 barrels above its 2024 level of 13.2 million, which was a record. But production could slow in 2026, as producers pull back in the face of an expected price dip.

Total global supply should rise by about 1.8 million barrels a day in 2025, and 1.5 million in 2026. That would be ahead of consumption at 1.3 million and 1.1 million barrels, respectively, the EIA predicts. Oil demand growth is on the downswing, as electric vehicles take hold in China and elsewhere. Before the pandemic, demand averaged annual growth of 1.5 million barrels a day.

Natural gas, by contrast, is seeing growing demand because natural gas is replacing coal in electricity production.

The forecast helps explain a recent divergence between oil and natural gas stocks. Leading natural gas producers EQT and Expand Energy are up 38% and 24%, respectively, over the past six months. By contrast, Exxon Mobil and Chevron -- which have natural-gas operations but are more exposed to oil prices -- are down 5% and 1%, respectively.

Write to Avi Salzman at avi.salzman@barrons.com

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January 14, 2025 17:10 ET (22:10 GMT)

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