The US Energy Information Administration expects global crude oil production and trade to return to near pre-conflict levels by the end of 2026, earlier than it projected last month, according to its monthly Short-Term Energy Outlook for July on Tuesday.
The agency expects most Middle East crude production and trade to recover by year-end, with 1.4 million barrels per day still shut-in during Q4 2026 before most remaining output returns in Q1 of 2027.
The improved outlook follows the June 18 memorandum of understanding between the US and Iran that ended the conflict and reopened the Strait of Hormuz, which had remained effectively closed since Feb. 28.
The EIA said global oil markets adjusted faster than it expected as weaker demand, particularly in Asia, supply rerouting by Persian Gulf producers, higher exports from North and South America, and strategic stock releases eased supply disruptions.
Brent crude spot prices averaged $85 per barrel in June, down $22/bbl from May, and $32/bbl from its April peak. Spot prices dropped below $70/bbl on July 1 as tanker traffic through the Strait of Hormuz accelerated and oil flows recovered, the report said.
"We expect ongoing oil inventory accumulation over the next year will continue to put downward pressure on crude oil prices, with Brent falling to an average of $65/bbl in 2027," according to EIA analysts.
EIA forecasts Brent spot prices will average $74/bbl in Q3, down $ 27/bbl from last month's outlook. In Q4, Brent spot prices are estimated to average $70/bbl in Q4 2026, down from $103/bbl in Q2.
The full-year Brent spot forecast is now estimated to average $82/bbl, down from $95/bbl in last month's outlook. For 2027, the Brent spot forecast was revised downwards by $15 to $65/bbl.
WTI spot prices are expected to average $76.26/bbl in 2026 and $60.76/bbl in 2027, according to the STEO.
The agency estimated that Middle East crude production shut-ins averaged 8.3 million b/d in June, down from 11.2 million b/d in May, reflecting improving supply conditions.
Global oil inventories fell by an average of 5.1 million b/d in Q2 2026 and are expected to decline by another 2.2 million b/d in Q3 as previously stranded tankers continue unloading cargoes, the EIA said.
The EIA expects the market to return to its pre-conflict oversupply during the second half of Q3, forecasting inventory builds averaging 2.7 million b/d in Q4 of 2026 and 5 million b/d in 2027.
High fuel prices, supply shortages and government conservation efforts reduced global oil demand during the conflict, helping limit inventory declines despite significant production losses, according to the report.
The EIA expects global oil consumption to decline by an average of 1.2 million b/d in 2026, including an 800,000 b/d decrease in non-OECD countries, before rebounding by 2million b/d in 2027 to 104.8 million b/d.
Meanwhile, US gasoline inventories fell below the five-year range during April and May as lower production, fewer imports and stronger exports tightened supplies.
The EIA expects higher refinery output and imports to stabilize inventories by Q4 2026, before inventories return to five-year averages early in 2027.
The agency expects US retail gasoline prices to fall about 41 cents per gallon in Q3 from the second quarter to just under $3.80/gal as crude prices decline, although stronger wholesale and retail margins will offset part of the drop.
The EIA forecasts retail gasoline prices will ease further to about $3.40/gal in Q4 2026 and average close to $3.10/gal in 2027 as inventories recover, crude prices decline and seasonal demand weakens.