The U.S. Energy Information Administration (EIA) announced Tuesday that it has increased its short‑term outlook for oil prices. Brent crude is now expected to average roughly $98 a barrel in 2026, an 8% rise from the agency’s prior estimate.
War‑driven supply constraints push prices higher
According to the EIA’s Short‑Term Energy Outlook, the surge in oil and fuel prices stems from the U.S.–Israeli military action against Iran. The conflict has disrupted the flow of oil through the Strait of Hormuz, a chokepoint that previously carried about 20% of the world’s oil supply. Iran’s retaliatory strikes on regional energy infrastructure have further tightened the market.
As a result, global oil inventories are falling rapidly, and diesel supplies remain tight. The agency projects Brent crude to average about $105 a barrel in the fourth quarter of 2026, $14 above its earlier forecast. U.S. retail diesel prices, which hit record highs last month, are expected to stay above $6 a gallon in October before easing to an average of roughly $4.50 a gallon in 2027.
Supply routes adapt and recover
Despite the disruption, the EIA expects Middle‑East oil production and exports to gradually rebound. Transit through the Strait of Hormuz is improving, and exporters are shifting to alternative routes, including ship‑to‑ship transfers and “dark transits” that temporarily disable tracking systems.
Saudi Arabia has resumed shipments through its East‑West Pipeline to the Red Sea, bypassing the strait. These adjustments have helped restore Gulf oil flows—excluding Iran—to more than 81% of pre‑war levels in September.
Future outlook
With the workarounds expanding, the EIA forecasts a decline in crude production shut‑ins, from 4.5 million barrels per day in the fourth quarter of 2026 to 2.7 million barrels per day in the first quarter of 2027.
Looking ahead to 2027, Brent is projected to average $84 a barrel, about $10 higher than the agency’s earlier estimate, reflecting the lingering impact of the conflict but also the gradual rebuilding of inventories.
The EIA’s updated outlook underscores the ongoing volatility in global energy markets caused by geopolitical tensions, while also highlighting the resilience of alternative supply routes and the potential for inventory recovery as the situation stabilizes.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
