The US Energy Information Administration expects elevated oil prices and tight US distillate supplies to persist through 2026, according to its September Short-Term Energy Outlook on Wednesday.
Brent crude averaged $91 per barrel in August, up $7/bbl over the month, as constrained Middle East exports triggered additional production shut-ins, EIA said.
The renewed US blockade of Iranian oil exports and new Treasury sanctions targeting Iranian economic and oil interests should further restrict Iran's production and exports.
Attacks on Saudi Arabia's oil exports through the Bab el-Mandeb strait cut shipments from Yanbu by about half in August from July, EIA said, citing Vortexa estimates.
Saudi Arabia increased shipments through the Suez Canal and reportedly began using ship-to-ship transfers outside the Persian Gulf to offset disruptions at Yanbu.
EIA expects the constrained Red Sea shipping route to limit Saudi supply in the near term until global shipping flows adjust to the disruptions.
Crude production shut-ins averaged 6.7 million barrels per day in August, up from 5 million b/d in July, as flows through the Strait of Hormuz and Bab el-Mandeb remained restricted.
Saudi Arabia and Iraq account for the bulk of the shut-ins, with EIA projecting 3.55 million b/d and 1.16 million b/d respectively lost in Q3 2026, out of roughly 6.2 million b/d total across the region.
EIA expects Middle East oil flows to remain constrained through Q4 2026, resulting in average production shut-ins of 5.7 million b/d during the quarter.
Shippers should gradually restore Middle East oil flows through pipeline and overland routes, increased ship-to-ship transfers and other bypass options, EIA said.
A new bypass pipeline in the UAE should come online in mid-2027, while EIA expects most production and trade flows to return to pre-conflict levels by Q2 2027.
Some Persian Gulf producers may not restore output to pre-conflict averages during the forecast period, despite the gradual recovery in regional oil flows.
Oil prices should remain elevated as ongoing supply disruptions continue to draw down global inventories, with prices likely to ease only after oil flows normalize and stockpiles recover, EIA said.
EIA estimates global oil inventories have already fallen by about 400 million barrels so far this year. Global inventories fell by an average of 3.9 million b/d in Q2 2026 and should decline another 3 million b/d in Q3 2026 and 1.7 million b/d in Q4 2026.
EIA raised its second half 2026 Brent forecast to about $90/bbl, $8/bbl above its previous outlook, as continued supply disruptions keep global inventories under pressure.
As Middle East exports recover and shut-in production returns, EIA expects oil prices to fall to an average of $77/bbl by Q2 2027.
Most shut-in production should return in H2 2027, allowing global inventories to rebuild and pushing prices to $67/bbl. However, conflict-driven disruptions could keep oil flows and short-term prices volatile.
EIA projects US crude oil production will hold roughly flat at 13.8 million b/d in 2026 before rising to 14.3 million b/d in 2027, offsetting the tighter Middle East supply picture.
US distillate inventories are expected to fall below 100 million barrels in September and remain below the 2021-2025 five-year low through 2026 and most of 2027.
Inventories fell below the five-year range in April as high US net exports followed major distillate supply losses from the Middle East, Russia and China.
Tight global distillate supplies have lifted prices and encouraged US exports, while EIA expects global distillate production to remain below 2025 levels in coming months.
US net distillate exports have stayed near or above the five-year high every month since February, while seasonal refinery maintenance and higher fall and winter demand could further tighten supplies.
US diesel crack spreads should exceed $2 per gallon from August through November before declining steadily through mid-2027, assuming tanker traffic through the Strait of Hormuz normalizes.
EIA also revised several forecasts up from August. It now expects the 2026 distillate crack spread to average $0.94/gal, up 11.6% from $0.84/gal. Full-year 2026 retail diesel prices are expected to average $5.07/gal, up 4.4% from $4.85/gal, with 2027 diesel prices revised up 8.2%.
A return to normal Middle East crude flows should help Saudi Arabia and Kuwait raise distillate exports, while better crude availability could lift East Asian refinery output and lower global crack spreads.
If Middle East flows remain constrained beyond 2026, global distillate crack spreads could exceed EIA's current forecast, while Russian refinery outages should affect the market through first half of 2027.