EIA slashes oil price forecasts for this year and next, expects Hormuz to return to normal by year-end, and AI boom drives US electricity consumption to consecutive annual highs

EIA slashes oil price forecasts for this year and next, expects Hormuz to return to normal by year-end, and AI boom drives US electricity consumption to consecutive annual highs

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The official U.S. energy outlook report releases multiple strong signals: Oil transport through the Strait of Hormuz is expected to basically return to normal by the end of this year, and as supply risk premiums continue to dissipate, both domestic and international crude oil prices will drop significantly compared to previous forecasts this year and next; meanwhile, driven by the expansion of AI data centers, U.S. power demand is expected to break annual records for two consecutive years.

On Tuesday, July 7 Eastern Time, the U.S. Energy Information Administration (EIA) released the “Short-Term Energy Outlook” (STEO), showing that with gradual recovery in the Strait of Hormuz transport, continued OPEC+ production increases, and global supply growth outpacing demand growth, international oil prices face significant downward pressure over the next two years. The price forecast released on July 7 was slashed by at least 10% compared to the previous forecast on June 9.

The report shows that EIA has significantly lowered its 2026 Brent crude average price forecast from $95/barrel to $82/barrel, with a reduction of about 13.7%; the 2027 forecast was lowered from $79/barrel to $65/barrel, down about 17.7%; the U.S. WTI crude average price for 2026 was reduced from $88.32/barrel to $76.26/barrel, down about 13.7%, and the 2027 forecast price was lowered from $74.39/barrel to $60.76/barrel, down about 18.3%.

At the same time, the EIA raised its forecast for U.S. crude oil production this year, expecting U.S. daily crude output to reach 13.8 million barrels in 2026, slightly higher than previously predicted. However, as oil prices are expected to fall in the future, suppressing shale oil investment, EIA has slightly reduced its U.S. oil production forecast for 2027 to 14 million barrels/day.

Hormuz transport expected to return to normal by year-end, oil market risk premium continues to dissipate

One of the biggest changes in this STEO is EIA’s reevaluation of Middle East supply risks.

The report states that in June this year, tensions in the Middle East disrupted Strait of Hormuz transport, pushing up international oil prices and increasing concerns about global energy supply. But as regional tensions ease and transport gradually resumes, EIA expects oil shipments through the Strait of Hormuz to return to near-normal levels by the end of 2026.

This assessment means that the geopolitical risk premium supporting international oil prices in recent months is rapidly dissipating.

Meanwhile, OPEC+ continues to expand production, and supply growth from non-OPEC oil producers like the U.S., Canada, Brazil, and Guyana improves global oil supply further.

EIA predicts global oil supply growth will continue to outpace demand growth over the next two years, with global commercial crude inventories entering an accumulation phase again. This is an important reason for the sharp downward revision of international oil price forecasts.

Global demand slightly revised down, supply forecasts significantly revised up

Compared to the demand side, EIA has more clearly revised supply forecasts this time.

Specifically:

  • Global crude demand in 2026 is expected to be 102.8 million barrels/day, previously forecasted at 102.9 million barrels/day;
  • 2027 demand is expected to be 104.8 million barrels/day, previously forecasted at 105.3 million barrels/day.

Meanwhile, global supply forecasts are significantly revised up:

  • Global crude production in 2026 is expected to reach 101.9 million barrels/day, up from the previous forecast of 99 million barrels/day;
  • 2027 global production is expected to reach 109.8 million barrels/day, up from the previous forecast of 109.3 million barrels/day.

EIA believes continued supply growth and inventory accumulation will keep future international oil prices under pressure.

U.S. crude production continues to grow, shale expansion expected to slow

For the U.S. market, EIA expects U.S. oil production to hit a record high this year.

The report predicts:

  • U.S. crude production in 2026: 13.8 million barrels/day, higher than the previous forecast of 13.7 million barrels/day;
  • 2027 production: 14 million barrels/day, lower than the previous forecast of 14.2 million barrels/day.

EIA says this year’s higher oil prices and prior investments will continue to support U.S. crude output growth, but with international oil prices trending downward, shale oil companies’ capital spending in 2027 is expected to be more cautious, so long-term production forecasts were revised down.

Changes in U.S. oil consumption are relatively limited:

  • 2026 demand remains unchanged at 20.7 million barrels/day;
  • 2027 demand is slightly increased to 20.8 million barrels/day.

AI data centers continue expanding: Commercial power demand to surpass residential for the first time

In addition to the oil market, EIA also raised its U.S. electricity demand forecast, expecting annual electricity consumption to reach historic highs for both 2026 and 2027, mainly driven by rapid expansion of AI data centers, the electrification process, and growth in commercial and residential electricity usage.

EIA predicts that in 2026, U.S. annual electricity demand will rise from the record 4.195 trillion kWh in 2025 to 4.269 trillion kWh, and further to 4.399 trillion kWh in 2027.

The report specifically notes that the rapid adoption of AI applications has driven large tech companies to continuously expand data centers, making computing power infrastructure one of the most important sources of new electricity demand in the United States, continuing to support natural gas power demand. Growth is mainly driven by the commercial sector, and commercial power demand is expected to surpass residential for the first time in 2026.

EIA forecasts that in 2026, residential electricity sales will slightly decrease to 1.508 trillion kWh, while commercial and industrial sales will rise to 1.55 trillion and 1.065 trillion kWh respectively.

By comparison, the historical highest electricity consumption for residential and commercial users will occur in 2025 (1.515 trillion and 1.493 trillion kWh respectively), while industrial users’ record was in 2000 at 1.064 trillion kWh annually.

LNG exports continue to grow, U.S. natural gas supply and demand both strengthen

For natural gas, EIA continues to raise U.S. supply forecasts.

The report forecasts:

  • U.S. natural gas production in 2026: 112.2 billion cubic feet/day, above the previous forecast of 111 billion cubic feet/day;
  • 2027 production: 115.3 billion cubic feet/day, above the previous forecast of 113.6 billion cubic feet/day.

On demand:

  • 2026 natural gas consumption remains 92.1 billion cubic feet/day;
  • 2027 consumption remains 95 billion cubic feet/day.

On exports:

  • U.S. LNG exports in 2026 are expected to reach 17.4 billion cubic feet/day, up from the previous forecast of 17.2 billion cubic feet/day;
  • 2027 remains at 18.6 billion cubic feet/day.

EIA expects continued growth in U.S. LNG exports as more liquefied natural gas projects get underway.

According to the EIA schedule, the next “Short-Term Energy Outlook” (STEO) will be released on August 11.

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