The oil and gas market was punctuated with volatility in 2025.
Oil prices softened as supply outpaced demand and inventories built. Brent and West Texas Intermediate (WTI) crude slipped in late 2025, with Brent dipping below US$60 per barrel and WTI hovering at US$55.
Production increases from non-OPEC producers — including record US output — and higher OPEC+ quotas have contributed to a notable supply overhang, pressuring crude toward four year lows.
Starting the year above US$70, both Brent and WTI prices have now seen steep declines of more than 20 percent amid signs of weaker demand in major economies like China and elevated global stocks.
Meanwhile, the natural gas market saw price shifts driven by weather and storage dynamics.
Prices started the year at US$3.64 per million British thermal units and slipped to a seasonal low of US$2.74 in August. Values peaked at US$5.31 on December 5, and have since retreated to the US$3.94 level.
The US Energy Information Administration (EIA) raised its outlook for late 2025 and early 2026 gas prices after an early cold snap bolstered heating demand, even as forecasts have moderated Henry Hub projections for 2025 to 2026.
Oil market battles persistent headwinds
2025 saw oil prices fluctuate between highs of US$81.86 (Brent) and US$78.99 (WTI) and lows of US$59.41 and US$55.56, respectively, as the energy market served as a barometer of global political and trade tensions.
“Throughout the year, prices have continued the downtrend they began in April (2024) as OPEC+ continued to hike output and China’s economy continued to struggle under the weight of a flailing property sector, downbeat consumer confidence, overindebted local governments and flagging external demand,” he added.
While the oil market isn’t new to volatility, this year proved different as US President Donald Trump’s on-again, off-again tariffs infused global uncertainty into the energy market.
“We can see that Trump’s ‘Liberation Day’ tariffs pushed prices down to a level from which they’ve not recovered from, barring a spike in June as a result of the 12 day Iran-Israel war,” said Cunningham.
“Since then, Brent crude oil prices have continued to fall as OPEC+ caught the market off guard with its aggressive output hikes, which were designed to win back market share from non-cartel producers.’
Demand growth, underinvestment reshape oil outlook
Meanwhile, OPEC is approaching full production capacity, with Saudi Arabia being the main exception.
“Even though people are talking about lots of supply, demand is still growing,” Schachter said, noting that global oil demand rose roughly 1.3 million barrels per day in 2025 and is expected to increase by about 1.2 million in 2026.
New supply additions are limited, he explained, mentioning Guyana’s offshore discoveries by ExxonMobil (NYSE:XOM), some output from Brazil and minor contributions from Canada.
“Most basins are tired, and not enough money is being spent to bring on production,” Schachter said, predicting that global inventory drawdowns in 2026 will support higher prices.
Despite lack of investment at the exploration level, FocusEconomics panelists are forecasting a rise in both oil and gas supply in 2026 fueled by output growth at existing operations.
Cunningham pointed to organizations like the EIA and International Energy Agency (IEA), which “hiked their forecasts in recent months in response to OPEC+ increasing output unexpectedly fast and the recent surge in demand for US LNG.”
“The real question is not if oil and gas production will increase, but by how much,” said Cunningham.
A ramp up could be curtailed by geopolitical disruptions, he went on to note.
“Recent frictions between members of the OPEC+ cartel will persist, with Russia likely to favor lower production levels given US sanctions and countries like Saudi Arabia and the United Arab Emirates eager to push production higher given their excess capacity and desire to win back market share from non-OPEC+ producers,” he said.
“Moreover, countries like Kazakhstan and Iraq continue to overshoot their quotas, and in late 2023 Angola left the cartel due to disputes over its allowed production level.”
Transport and petrochemicals driving oil demand
Global oil demand is expected to rise in 2026, driven primarily by transportation fuels and petrochemical feedstocks.
Gasoline is projected to lead the increase, supported by recovering air travel and road mobility, while diesel and other products also contribute. Non-OECD regions, particularly China and India, will account for most of the growth, with expanding petrochemical capacity in major economies boosting crude-derived feedstock demand.
Overall, transport and industrial activity remain the key engines behind the expected rise in oil consumption.
“Our panelists see world oil production rising 1.1 percent in 2026 as non-OPEC+ countries such as Guyana and the US hike output,” said FocusEconomics’ Cunningham.
LNG expansion fuels gas growth
Similar to the trajectory for oil, natural gas demand is expected to rise in 2026 as global consumption rebounds and LNG exports expand sharply. “The IEA (is) estimating growth at around 2 percent with consumption at an all-time high on higher demand in the industrial and electricity sectors,” said Cunningham.
Rising LNG supply — with new export capacity coming online in the US, Canada and Qatar — is projected to support stronger import growth, particularly in Asia, where demand is expected to rebound after a 2025 slowdown.
“Asia is hungry for LNG; the IEA estimates the region’s natural gas demand will rise over 4 percent in 2026, with LNG imports up by 10 percent,” the expert said. Increased use of natural gas in power generation and industrial sectors will also contribute to growth, helping push global gas demand toward a new peak next year.
“Of course, these forecasts could change quickly if the world economy or the oil and gas sector is subject to further shocks, which is why we recommend regularly checking the latest forecasts that are available,” Cunningham added.
Further ahead, Schachter argued that rising global power needs will underpin long-term demand for natural gas, particularly as alternatives struggle to scale. Aging power grids are another constraint. Much of the world’s electricity infrastructure has not been meaningfully upgraded, and expanding capacity will require major investment in transmission — driving demand for copper, steel and aluminum alongside new generation.
Against that backdrop, Schachter sees LNG as central to meeting near- and medium-term power needs.
“The demand for LNG is the story,” he said, adding that natural gas is increasingly viewed not as a temporary transition fuel, but as “the most efficient, from a climate and environmental point of view.”
He also highlighted Canada’s advantage as producers invest heavily in emissions-reduction technologies, including methane mitigation. That positioning could make Canadian LNG more attractive to import-dependent nations such as Japan and South Korea.
While new supply from Qatar and the US will add capacity, Schachter cautioned that LNG development is rarely linear, pointing to Canada’s decades-long path to its first operating export terminal. Despite inevitable delays and short-term imbalances, he said the long-term outlook remains clear: “The industry’s fundamentals are very, very positive.”
Cunningham also pointed to increased output from the US and Qatar as key areas to watch in 2026.
“The big Qatari and US LNG projects will help natural gas prices converge globally — our Consensus Forecast is for the percentage difference between US gas prices (which tend to be lower due to huge domestic production) and those in Asia and Europe to ease to the lowest level since 2020, the year the pandemic sent gas demand plummeting,” said Cunningham, adding, “In short, record US LNG shipments will send up prices at home and lower them abroad.”
Cunningham went on to explain that unlike oil, in the natural gas market there tends to be more price divergence between regions as natural gas is harder to transport over large distances. Oil can be poured into a barrel and shipped, whereas natural gas first needs to be liquified if it’s to be sent overseas. Greater LNG capacity will help bridge this gap.
Oil and gas price forecast for 2026
Schachter expects WTI to average over US$70 in 2026, with Brent around US$73 to US$74.
He anticipates some volatility early in the new year, saying that in Q1 he expects trading to be “still sloppy between US$56 and US$66,” before prices rise in Q2 to US$62 to US$72. From there, he sees prices reaching US$68 to US$78 in the year’s third quarter as inventories tighten and market fundamentals assert themselves.
“People think we’re going back to US$80 today. US$58 oil — it ain’t going to US$80. But when the industry is in rational supply and demand, prices climb, especially when inventories draw down quickly,” Schachter said, recalling the 2008 peak in oil prices near US$147 during extreme supply shortages.
Looking at the year ahead, FocusEconomics expects the trends of 2025 to continue.
“Average Brent crude oil prices will ease further to a post-pandemic low, while US natural gas prices will increase to the highest average level since 2014 barring 2022’s Russia-Ukraine-war-driven spike,” said Cunningham.
“OPEC+ is set to continue raising output — after a pause in Q1 2026 — and the global economy should slow as the boost from export front-loading ahead of US tariff wanes.”
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
