The U.S. Energy Information Administration raises next year's U.S. oil production forecast, expecting global oil production to continue exceeding demand after the Strait of Hormuz reopens.

Due to supply disruptions from major Middle Eastern oil-producing countries, oil prices have recently surged significantly, prompting the U.S. to raise its forecast for future domestic oil production. According to the Short-Term Energy Outlook released by the U.S. Energy Information Administration (EIA) on Tuesday, U.S. crude oil production is expected to increase by 220,000 barrels per day in 2027, reaching 13.83 million barrels per day, up from the previous estimate of 13.32 million barrels per day. The EIA also forecasts 2026 production at 13.61 million barrels per day, slightly higher than the previous estimate of 13.60 million barrels per day.

This latest 2027 forecast by the EIA is approximately 500,000 barrels per day higher than their projection in February of this year. Earlier reports indicated that U.S. oil production would peak this year and then decline starting in 2027.

In the latest report, the EIA stated: “Because the impact of oil price changes on production takes time to manifest—from investment decisions, rig deployment, to well completion and first oil—we expect the effect of rising oil prices on 2027 production to be more pronounced than on 2026.”

At the end of last month, the U.S. and Israel launched strikes against Iran, triggering widespread Iranian retaliation and effectively closing the crucial Strait of Hormuz. This strait typically accounts for about one-fifth of global oil transportation. As storage capacities fill up gradually, oil production across the region is being affected by cuts.

The EIA estimates that the production of oil involved in the forced closures may peak in early April, mostly from Iraq, with relatively smaller impacts on Kuwait, the UAE, and Saudi Arabia.

The EIA added that a substantial closure of the Strait of Hormuz is expected to lead to further declines in Middle Eastern oil production over the coming weeks. Once the Strait reopens, the shut-in capacity will be gradually released, and production will recover. Once the Strait of Hormuz resumes navigation, global oil production will continue to exceed consumption.

Given the expected significant inventory buildup during the forecast period, the EIA does not anticipate a substantial increase in OPEC+ production next year. The agency forecasts that global oil inventories will increase by an average of 1.9 million barrels per day in 2026, and by 3 million barrels per day in 2027.

This week, U.S. oil prices briefly surged close to $120 per barrel before falling back to around $84. The EIA has again raised its oil price forecasts for this year:

Brent crude oil is expected to average $79 per barrel in 2026 (up from $58), and $64 per barrel in 2027 (up from $53).

Due to Middle Eastern conflicts, Brent crude prices are expected to stay above $95 per barrel over the next two months, then fall below $80 in the third quarter, and drop to around $70 by the end of the year.

This price rally has pushed U.S. retail gasoline prices to their highest levels since July 2024. The EIA has raised its forecast for the average U.S. retail gasoline price in 2026 to $3.34 per gallon, an increase of 43 cents from previous estimates.

The surge in oil prices has also prompted a wave of hedging by U.S. shale oil producers to lock in high future sales prices. This move could enable producers to expand output even if prices decline in the coming months.

The EIA has also raised its forecast for 2027 Permian Basin crude oil production by 6%, supported by additional pipeline capacity and higher oil prices incentivizing growth in the region.

Additionally, since the outbreak of Middle Eastern conflicts, global diesel prices have risen sharply. The EIA expects U.S. diesel prices to continue climbing, with the average price rising from $3.43 per gallon to $4.12 in 2026.

The EIA will release its next Short-Term Energy Outlook on April 7.

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