NEW YORK, Oct 6 (Reuters) – The US Energy Information Administration raised its oil price forecast for this year and next year on Tuesday, as global stockpiles fall rapidly and diesel markets remain tight due to the ongoing Iran war.
Attacks on Saudi Arabia’s East-West Pipeline, a key export route for one of the world’s largest oil producers, underscore the risk of further disruptions to physical oil flows and prices, the EIA said in its Short-Term Energy Outlook.
At the same time, exceptionally tight diesel supplies are boosting demand for crude as refiners seek to maximize diesel production, it added.
As a result, falling global inventories and tightening diesel markets are expected to keep crude prices elevated. Global benchmark Brent crude is forecast to average about $105 a barrel in the fourth quarter, $14 above the EIA’s previous estimate. US retail diesel prices, which hit record highs last month, are expected to remain above $6 a gallon in October before gradually easing to an average of roughly $4.50 a gallon in 2027, the EIA said.
Overall, for 2026, Brent crude prices are now expected to average about $98 a barrel, up 8% from the EIA’s prior forecast last month, the agency said.
Oil and fuel prices have risen dramatically due to the US-Israeli war on Iran, which in turn has disrupted oil flows through the Strait of Hormuz, which carried about 20% of global oil supplies before the war.
Oil prices were down 2% on Tuesday but are still up more than 37% since the war started on February 28. Iran has also struck regional energy infrastructure in the region, further straining crude production.
“Although we assume that oil flows from the Middle East will remain constrained through the fourth quarter of 2026, we estimate that regional shut-in production in September was the lowest since the onset of hostilities,” the EIA said in its monthly report.
Middle East oil production and exports are expected to gradually recover this year as transit through the strait improves and producers shift to alternative export routes and ship-to-ship transfers. As flows recover and inventories rebuild, Brent is expected to average $84 a barrel in 2027, the EIA said, $10 above its prior forecast.
Flows have improved as Saudi Arabia restarted shipments through its East-West Pipeline after Houthi attacks, while regional exporters have adapted to attacks on shipping and energy infrastructure by using so-called dark transits, in which tankers disable tracking systems before transferring cargoes at sea.
Those measures have helped restore Gulf oil flows, excluding Iran, to more than 81% of pre-war levels in September.
As those workarounds expand, crude production shut-ins are expected to fall from 4.5 million barrels per day (bpd) in the fourth quarter of 2026 to 2.7 million bpd in the first quarter of 2027, the agency said.
The EIA expects US crude oil production to rise to a record 14.3 million bpd in 2027 from 13.9 million bpd in 2026, also a record. US petroleum demand is forecast to dip to 20.6 million bpd in 2026 before rebounding to 20.8 million bpd in 2027, the agency said.
(Reporting by Siddharth Cavale in New York; Editing by David Gaffen and Deepa Babington)
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