EIA raises fourth-quarter oil price forecast to US$105, September average hits US$114
Attacks on Middle East energy facilities, record freight costs and a tight diesel market are driving crude prices higher, but the EIA expects prices to ease gradually.
The US Energy Information Administration (EIA) on October 6 raised its forecast for the average Brent crude spot price in the fourth quarter of 2026 by US$14 to US$105 a barrel in its Short-Term Energy Outlook. Its forecast for the annual average was increased from US$91 to US$96 a barrel, while the forecast for 2027 was raised from US$74 to US$84. It was the third consecutive month since August that the EIA has raised its oil price forecast.
However, US$105 is not a recent high. The EIA report showed that Brent averaged US$114 a barrel in September, up US$23 from the previous month, and briefly reached US$131 on September 15. The agency also expects oil prices overall to retreat from early October levels.
Pipeline attack sends freight costs to record high
The EIA said the sharp rise in oil prices in September was driven by an increase in attacks on energy facilities and oil tankers in the Middle East. The attack on Saudi Arabia's East-West Pipeline drew particular attention. The pipeline is an important route for bypassing the Strait of Hormuz, and the EIA estimates that more than 5 million barrels of crude a day were exported through the Red Sea port of Yanbu before the attack. The pipeline was temporarily shut down before being repaired and partially restored on September 22.
The report also said tanker freight rates reached a record high in September, reflecting higher insurance premiums and the increased cost of rerouting vessels. This further pushed up refiners' delivered crude costs.
Hormuz traffic recovers but remains below pre-war levels
Oil exports through the Strait of Hormuz have continued to recover, although the figures vary depending on how different agencies define and measure the flows. Energy data provider Vortexa told the German Press Agency that crude and condensate exports through the strait at the end of September were about 80% of pre-war levels, averaging 11.2 million barrels a day on a weekly basis. Including liquefied petroleum gas and refined products, the figure was about 65% to 70% of pre-war levels. JPMorgan estimated that Middle East crude exports, including alternative routes that bypass the strait, were about 98% of pre-war levels, although refined product exports remained significantly restricted.
The EIA, citing Vortexa data, said volumes transported through the strait rose slightly in September, mainly because Saudi Arabia increased ship-to-ship transfers off the coast of Oman.
Lower production losses, but inventories continue to fall
The EIA estimated that Middle East crude production losses averaged 4.8 million barrels a day in September, the lowest level since the outbreak of the war. That was down from 5.8 million barrels a day in August and well below the peak of 10.9 million barrels a day in May. The EIA forecast average losses of 4.5 million barrels a day in the fourth quarter, down from its previous estimate of 5.7 million barrels. In other words, the latest increase in its oil price forecast was not driven by expectations of greater production losses.
On inventories, the EIA estimated that global oil stocks fell by an average of 1.9 million barrels a day in the third quarter. It expects a further average decline of 700,000 barrels a day in the fourth quarter, although the pace of the drawdown will slow. The EIA said prices would remain elevated until restrictions on Middle East exports were resolved and inventories could be replenished.
The US Strategic Petroleum Reserve (SPR) fell to 283.8 million barrels at the end of September, the lowest level since October 1982, according to US Department of Energy data. The EIA forecasts that the reserve will fall to about 242.5 million barrels by the end of the year. Its forecast includes the 40 million-barrel reserve swap announced on September 29, but does not take into account measures announced by the G7 on October 2.
Diesel squeeze adds to crude demand
The EIA said the average US retail price of diesel was US$6.29 a gallon in September, compared with US$4.35 for petrol. It expects diesel prices to remain above US$6 in October before gradually falling as crude prices and inventories recover slightly, reaching an average of about US$4.50 in 2027. Distillate inventories on the US East Coast were 32% below the five-year average for September.
The EIA said the diesel market was extremely tight, prompting refiners to increase crude demand to meet diesel consumption and creating additional upward pressure on oil prices.
For US crude production, the EIA forecasts an average of 13.87 million barrels a day in 2026, up from 13.66 million barrels in 2025, rising to 14.30 million barrels a day in 2027. The EIA's winter fuels outlook also said US households that use heating oil — about 3% of households, mainly in the north-east — face heating oil prices more than 30% higher than last winter, with spending expected to rise by 21%.
Three key uncertainties ahead
The EIA forecasts that Middle East production losses will gradually decline after the fourth quarter. It expects the average Brent price to fall to US$87 a barrel in the second quarter of 2027 and US$74 in the fourth quarter. However, it warned that flows through the Strait of Hormuz and alternative routes would remain volatile, with short-term price swings likely to be greater than indicated by its forecast.
There are three key variables for the outlook: whether exports through the Strait of Hormuz and alternative routes can stabilise; the speed at which global inventories are replenished; and how the measures announced by the G7 on October 2 are implemented. The last of these has not yet been included in the EIA's forecast.