The US Energy Information Administration raised its oil price forecasts for this year and next on Tuesday, citing rapidly declining global inventories and tight diesel supplies caused by the ongoing war with Iran, Reuters reported.The EIA now expects global benchmark Brent crude to average about $98 a barrel in 2026, an 8% increase from its previous projection, according to its latest Short-Term Energy Outlook.

Oil and fuel prices have surged since the US-Israeli war with Iran disrupted shipments through the Strait of Hormuz, which handled about 20% of global oil supplies before the conflict. Iran has also targeted regional energy infrastructure in retaliation for US military strikes.

Falling inventories and tight diesel supplies are expected to keep prices elevated. Brent is forecast to average about $105 a barrel in the fourth quarter, $14 above the EIA’s earlier estimate.

US retail diesel prices, which reached record highs last month, are projected to remain above $6 a gallon in October before gradually declining to an average of about $4.50 in 2027.

However, Middle Eastern oil production and exports are expected to recover gradually as transit through the Strait of Hormuz improves and producers increasingly use alternative export routes and ship-to-ship transfers.

As supply flows normalise and inventories rebuild, Brent is expected to average $84 a barrel in 2027, $10 above the agency’s previous forecast.

According to Reuters, regional oil flows have improved after Saudi Arabia resumed shipments through its East-West Pipeline to the Red Sea, bypassing the Strait of Hormuz. Exporters have also adapted to attacks on shipping and energy infrastructure through “dark transits,” in which tankers switch off their tracking systems before transferring cargo at sea.

These measures helped restore Gulf oil flows, excluding Iran, to more than 81% of pre-war levels in September.

As the workarounds expand, crude-production shutdowns are expected to decline from 4.5 million barrels per day in the fourth quarter of 2026 to 2.7 million barrels per day in the first quarter of 2027, the EIA said.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)