A coming supply surplus and slowing global oil demand are expected to hobble U.S. crude oil production growth later this year, potentially leading to an annual decline in output by 2026, according to a new analysis from S&P Global Commodity Insights.
Jim Burkhard, Vice President and Global Head of Crude Oil Research at S&P Global Commodity Insights, emphasized that uncertainty surrounding U.S. trade policy and economic conditions is creating a volatile environment for oil markets.
“Although the magnitude of a potential economic and oil demand downturn is as uncertain as the future course of U.S. tariffs, the impact will be negative.
“Initial warning signs of a potential downturn are only starting to come into view. The level of severity is now the big question.”
Jim Burkhard, Vice President and Global Head of Crude Oil Research at S&P Global Commodity
The latest update to the S&P Global Commodity Insights Global Crude Oil Markets Short-term Outlook—the first since the April 2 announcement of new U.S. tariffs—now forecasts global oil (total liquids) demand growth to average 750,000 barrels per day (bpd) in 2025, marking a downward revision of 500,000 bpd from prior estimates.
The demand slowdown marks a significant shift in momentum after a strong first quarter, during which oil demand grew by an estimated 1.75 million bpd year-over-year.
However, demand growth for the remaining quarters of 2025 is now projected to average just 420,000 bpd, a stark contrast from initial expectations.
Supply Surplus and U.S. Production Decline
In addition to falling demand, a widening supply surplus, exacerbated by recent OPEC+ decisions to accelerate production increases, is putting additional pressure on U.S. crude oil output.
As a result, U.S. crude oil production is now expected to decline in 2026—the first year-on-year drop in roughly a decade, excluding the COVID-19-related slump in 2020.
While offshore and longer lead-time projects—which are less sensitive to price fluctuations—are expected to sustain year-on-year U.S. production growth in 2025, the overall market outlook suggests a slowdown.
Total U.S. production for 2025 is projected to average 13.46 million bpd, reflecting a 252,000 bpd increase year-over-year.
However, production is expected to fall back to 13.33 million bpd in 2026, marking a decline of 130,000 bpd.
“U.S. oil production growth has been a dominant feature in the oil market since 2022. A price-driven decline in U.S. production would be a pivot point for the oil market—and set conditions for a potential price recovery.
“But much will depend on the severity of an economic slowdown and the impact on demand growth beyond 2025.”
Jim Burkhard, Vice President and Global Head of Crude Oil Research at S&P Global Commodity
Price Outlook
The report’s projections are based on a price outlook of mid-to-low $60s per barrel for Dated Brent, and low $60s or high $50s per barrel for WTI on a monthly average basis for the remainder of the year.
However, significant downside risks remain, especially if efforts to ease newly imposed trade barriers fail or if OPEC+ continues to accelerate the unwinding of production cuts, potentially deepening the supply surplus.
Ian Stewart, Associate Director at S&P Global Commodity Insights, highlighted the market volatility stemming from shifting U.S. trade policies.
“Dizzying changes to U.S. tariffs—both real and proposed—are taking their toll on market sentiment.
“Our current outlook assumes that there will ultimately be some movement away from trade barriers to China as well as signs of progress in U.S. trade talks with Europe, Japan, and other major trading partners.”
Ian Stewart, Associate Director at S&P Global Commodity Insights
Stewart further warned, “That means the risk for additional downside is very real. Any periods of price strength are likely to be fragile.”
A prior S&P Global Commodity Insights analysis explored the potential implications of sustained $50 per barrel prices for WTI, revealing that U.S. Lower 48 onshore crude oil production could decline by more than 1 million bpd over a 12-month period at such a price level.
With economic uncertainty, trade policy fluctuations, and OPEC+ production strategies shaping the global market, the oil industry faces pivotal challenges that could define price trajectories and production trends beyond 2025.
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