The crude oil markets are preparing for what promises to be a major transition that will drastically change oil prices for the entire United States. More than one market forecaster now predicts that oil prices are set to fall to well below existing market values. In fact, oil will potentially average around $50 per barrel in 2026. This represents a drastic fall compared to 2025’s estimate to average $68 per barrel.
How global oversupply pushes forecasts of crude oil prices lower
There’s a clear projection laid down by the Energy Information Administration in September that outlines what’s behind lower oil price predictions. The Brent crude oil average price for 2026 was set at around $51 per barrel. The major trigger causing this sharp drop in crude oil price has been oil inventory accumulation due to increased supply offers by oil-producing entities like OPEC+.
Goldman Sachs reiterated these forecasts in late August, locking in its base case projection for Brent crude in the low $50s in late 2026. The investment bank pointed to large OECD stock builds and surplus conditions as major drivers behind its bearish scenario. Other analysts in the oil industry believe that oil prices are expected to decline from around the high $60s in 2025 to $51 per barrel in 2026.
Demand fails to keep up with supply
As supply growth and builds are identified as major forces driving expected devaluation in forecasts, there are other possible signals concerning demand weakness identified by analysts as another negative risk factor. Supply disruptions or geopolitics are considered to cause upward price forces, potentially hampering these forecasts.
Why gasoline prices could drop below $3 nationwide
In case oil prices average $50 per barrel in 2026, according to the EIA estimate, retail gasoline prices for ‘regular’ grades are expected to average $2.90 per gallon. This assumes an average price level lower than $3.10 per gallon in 2025. The expected prices are to remain below $3.00 per gallon in most areas, but not in markets serving the West Coast. One probable reason would involve California or other states in the west generally paying more because of environmental regulations.
The correlation between crude oil prices and gas prices responds to definite trends, with crude price variations accounting for nearly 90% of gas price variations in recent years. Applying regression analysis to determine the gas price based on $50 oil would cost around $2.48 per gallon for RBOB gasoline before applying retail taxes. With an added cost consideration for federal taxes at 18.4 cents per gallon plus average state taxes of 38 cents per gallon, the estimated retail cost would be around $3.05 per gallon.
Price breakdown components
- RBOB gasoline: $2.48/gallon
- Federal taxes: $0.184/gallon
- State/local taxes: $0.38/gallon
- Ethanol blend adjustment: -$0.12/gallon
Regional differences are related to differences in taxes and legislation
The addition of 10% ethanol blending, which currently stands at an average cost of $1.90 per gallon, has a slight bearing in lowering the final cost to around $2.93 per gallon. Notably, this compares remarkably well to the official prediction made by the EIA that gas will cost $2.90 per gallon.
Although the base case scenario suggests a probable decline in oil and gasoline prices, there is great uncertainty in these estimates. It was found using market analysis that there is a 68% chance that oil prices would fall between $49 per barrel $68.50 per barrel in mid-January 2026. These values are based on a two-standard deviation band that varies between $35.50 $94.50.
In recent months, crude oil has generally been below the $70-$90 range that was common in 2023-2024. In terms of economic planning related to fuel expenditures, there appears to be hope for relief from the recently high energy costs. At the same time, because there are so many possible outcomes, flexibility in terms of planning for energy needs continues to remain important.
