MONTREAL (Oil Monster): The U.S. Energy Information Administration has sharply raised its crude oil price outlook, forecasting Brent will average $105 per barrel in the fourth quarter of 2026 as Middle East supply disruptions, falling global inventories and unusually tight diesel markets continue to support prices.
The new forecast is $14 per barrel higher than EIA projected just one month ago, representing a significant revision to the agency's near-term oil-market outlook.
EIA expects conditions to gradually improve during 2027 as Middle East production and exports recover, forecasting Brent will average $84 per barrel next year.
EIA's October Short-Term Energy Outlook represents a substantial change from the agency's previous forecast.
The agency now expects Brent crude to average $105 per barrel during the final three months of 2026 as export constraints and production disruptions continue to limit the amount of Middle Eastern oil reaching global markets.
The agency said Brent averaged $114 per barrel in September, $23 higher than in August.
EIA expects prices to remain elevated through the remainder of the year before declining as more production and export capacity returns.
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EIA expects Middle East oil flows to remain constrained through the fourth quarter despite improving exports through the Strait of Hormuz and alternative routes.
Crude oil production shut-ins are forecast to average approximately 4.5 million barrels per day in Q4 2026.
That would represent an improvement from earlier in the conflict. EIA estimates shut-ins averaged 4.8 million bpd in September, down from 5.8 million bpd in August and a peak of 10.9 million bpd in May.
By the first quarter of 2027, EIA expects shut-in production to decline further to approximately 2.7 million bpd.
Although Middle East oil exports have been gradually recovering, EIA warned that physical supply remains vulnerable to additional disruption.
The agency specifically cited attacks on Saudi Arabia's East-West Pipeline as evidence that alternative export infrastructure remains exposed to geopolitical and security risks.
The East-West system has become particularly important because it allows Saudi crude to reach Red Sea export terminals without transiting the Strait of Hormuz.
Continued attacks on pipelines, terminals, refineries or commercial vessels could therefore interrupt the recovery in regional oil flows and trigger renewed price volatility.
Lower production and constrained exports are continuing to draw down global petroleum inventories.
EIA estimates that worldwide oil inventories fell at an average rate of approximately 1.9 million barrels per day during the third quarter.
The agency expects another decline of about 700,000 bpd during Q4.
Those inventory losses leave the market with a smaller buffer against additional disruptions and are an important reason EIA expects Brent to remain above historical averages through the end of the year.
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EIA said extreme tightness in global diesel markets is adding another source of upward pressure on crude prices.
Low diesel inventories and elevated demand encourage refiners to process additional crude oil in an effort to rebuild stocks, increasing demand for crude feedstock even as physical supply remains constrained.
U.S. East Coast distillate inventories were 32% below their five-year seasonal average in September.
EIA expects those inventories to remain roughly 20% to 30% below the 2021–2025 average through the coming winter.
The impact of tight crude and fuel markets has also become increasingly visible to U.S. consumers.
Retail gasoline averaged $4.35 per gallon nationwide in September, while diesel averaged $6.29 per gallon.
EIA attributed the increases to higher crude oil prices and widening refining margins.
The agency expects retail diesel to remain above $6 per gallon during October before gradually declining as crude prices ease and inventories begin recovering.
Diesel is forecast to average about $4.50 per gallon in 2027, while gasoline is expected to average just under $3.60 per gallon.
EIA expects the oil-market balance to become less constrained next year as Middle East production returns and producers expand the use of alternative export routes.
Improved traffic through the Strait of Hormuz, pipelines that bypass the waterway and ship-to-ship transfers are expected to increase the amount of oil available to international buyers.
As production shut-ins decline and global inventories begin rebuilding, EIA forecasts Brent will average $84 per barrel in 2027.
That represents a significant decline from the agency's $105 fourth-quarter forecast but would still leave crude prices elevated compared with levels seen before the Middle East conflict.
The October outlook is less bullish for U.S. natural gas prices.
EIA expects strong domestic production and relatively high inventories to limit natural gas price increases even as U.S. LNG exports continue growing.
The agency forecasts the Henry Hub spot price will average $3.16 per million British thermal units in 2027, about 9% below its expected 2026 average.
The direction of crude prices will depend heavily on the pace at which Middle East production and exports recover, whether attacks on energy infrastructure continue and how quickly depleted diesel and crude inventories can be rebuilt.
A faster recovery in Gulf oil flows could put downward pressure on EIA's $105 forecast, while additional attacks or further losses of production and refining capacity could keep prices elevated for longer.
EIA's next Short-Term Energy Outlook is scheduled for November 10.
Source: U.S. Energy Information Administration, October 2026 Short-Term Energy Outlook.
