'Crude Oil Normalization Accelerates'...EIA Expects Brent to Average $65 Next Year

Daily Output Disruption Peaked at 11.2 Million Barrels in May
Expected to Decrease to 1.4 Million Barrels Per Day in Q4
Crude Oil Supply Expected to Normalize Rapidly

There is an analysis suggesting that the energy supply shock triggered by the Iran war will recover more quickly than initially expected. As a result, the outlook for international oil prices in 2027 has also been revised downward.

On July 7 (local time), the U.S. Energy Information Administration (EIA) released its monthly report, stating that crude oil production, which had been disrupted by the Iran war, peaked at an average of 11.2 million barrels per day in May. However, it is projected to decrease to around 1.4 million barrels per day in the fourth quarter. Most of the production that was suspended is expected to resume by the first quarter of next year.

This means that the timeline for normalization has been moved up compared to previous forecasts. Until last month, the EIA had projected that crude oil transport through the Strait of Hormuz would not return to normal until early 2027, and anticipated that some production disruptions in the Middle East could be prolonged.

However, the global energy market has still not fully escaped the impact of the war. Some vessels remain at risk of attack while passing through the Strait of Hormuz. According to the EIA, the supply shock that pushed up prices of crude oil, fuel, and fertilizer this spring is expected to reduce global oil consumption by about 1.2 million barrels per day this year. The majority of this decrease in consumption is projected to occur in non-OECD countries such as India, Malaysia, and Brazil.

Nonetheless, the market's focus is shifting from concerns over supply shortages to the possibility of oversupply. As crude oil stranded in the Persian Gulf returns to the market, there are projections that supply may temporarily exceed demand. The EIA expects global crude oil inventories to increase by 2.7 million barrels per day in the fourth quarter and by 5 million barrels per day in 2027.

In line with this, the outlook for international oil prices has been lowered. The EIA forecasts that Brent crude will average $74 per barrel in the third quarter of this year, then drop to an average of $65 in 2027. This is significantly below last month's forecast of $79 for next year.

U.S. gasoline prices are also expected to decline from their peak. The EIA projects that the average U.S. retail gasoline price will be $3.80 per gallon in the third quarter of this year, with further decreases expected in the fourth quarter and next year. However, prices are still expected to remain higher than pre-war levels.

This content was produced with the assistance of AI translation services.