The global crude oil market is currently undergoing a critical reshaping period, according to Goldman Sachs' latest macro commodities research report.
The core view from the February report indicates that, as risk premiums diminish and fair value declines due to increasing OECD commercial inventories, both Brent and WTI crude oil prices are projected to reach their lowest point in the fourth quarter of 2026, falling to $60 per barrel and $56 per barrel, respectively.
For energy investors, this signifies that the central trading theme for the coming quarters will be the "absorption of the supply surplus." The report explicitly states that the global crude oil market will face a substantial surplus of 2.3 million barrels per day in 2026. However, this period of market weakness is not expected to last indefinitely. Investors must prepare their positions in advance for a structural reversal—Goldman Sachs forecasts that the crude oil market will return to a supply deficit in the second half of 2027. While the baseline prediction anticipates lower prices, the report cautions that future price risks are two-sided, with an overall bias towards the upside. Investors shorting the 2026 cycle need to closely hedge against the risk of a sharp rebound in 2027 driven by structural shortages.
The downward cycle in the crude oil market is expected to reach its nadir at the end of 2026. The driver behind this price reassessment is twofold: first, the risk premium associated with factors like geopolitics is fading; second, there is a substantive decline in the fair value of oil. Goldman's model calculates fair value by integrating the 1-month/36-month time spread and the valuation of the 36-month forward contract. Currently, a significant volume of sanctioned crude oil at sea is adding pressure on expectations for OECD commercial inventories. As OECD commercial inventories (measured in days of forward demand) increase and are influenced by the interest rate environment, the fair value of the time spread is suppressed. Concurrently, valuations for forward contracts are also being adjusted downward based on Goldman's top-tier project cost curve and estimates of remaining production capacity.
Goldman's quantitative data reveals a steep trajectory in supply and demand dynamics. The global market is set to experience a period of significant supply abundance, which will gradually be absorbed by demand.
In 2025, the market is already in a state of oversupply, with a surplus of 1.7 million barrels per day.
2026 will mark the peak of this imbalance, with an average annual surplus reaching 2.3 million barrels per day. The surplus in the first quarter of 2026 is projected to be a striking 2.9 million barrels per day. On the supply side, global total supply is expected to rise to 107.8 million barrels per day in 2026 (an increase of 1.8 million barrels per day year-over-year), with US total production reaching 22.9 million barrels per day and OPEC supply increasing to 35.3 million barrels per day. Global demand, at 105.5 million barrels per day, will be unable to absorb the massive new supply.
2027 is identified as the turning point. The average annual surplus for 2027 is expected to narrow significantly to just 0.6 million barrels per day. Most crucially, the market is forecast to re-enter a deficit in the second half of the year. Data indicates a minimal surplus of only 0.3 million barrels per day in the third quarter of 2027, shifting to a supply deficit of -0.3 million barrels per day in the fourth quarter. This shift is attributed to global demand climbing further to 106.6 million barrels per day, while global supply slightly decreases to 107.5 million barrels per day.
On the demand side, the report highlights clear regional structural divergence. Demand from OECD countries is expected to remain largely stagnant over the next three years, stabilizing between 45.9 and 46.2 million barrels per day. The entire incremental growth in global demand will rely on non-OECD countries, whose demand is projected to increase from 58.4 million barrels per day in 2025 to 60.5 million barrels per day in 2027. India emerges as a new engine of growth, demonstrating the most robust expansion, with demand rising from 5.8 million barrels per day in 2025 to 6.0 million in 2026, and further to 6.3 million barrels per day in 2027.
Despite the seemingly gloomy fundamental data for 2026, Goldman Sachs emphasizes in the report that while oil price risks are two-sided, the overall balance is skewed to the upside. This implies that after the market endures a painful period of inventory accumulation and price discovery for the bottom, any unexpected supply disruption or stronger-than-anticipated demand recovery could trigger a sharp, corrective rebound in oil prices, fueled by the anticipated deficit in 2027.