Is the world heading for an energy glut in 2026?

December 23, 2025 (MLN): The global energy industry is entering 2026 with abundant supply, eased price pressures and a shifting investment landscape,  as oil and gas markets loosen while power demand continues to grow and the energy transition slows.

Rystad Energy, a leading independent energy research and business intelligence firm, says geopolitical risk, shifting policy priorities and market fundamentals will shape the year ahead, even as the pace of the energy transition slows in key regions.

“A year of upstream energy abundance lies in store in 2026, but with potential bottlenecks downstream,” said Jarand Rystad, founder and chief executive officer of Rystad Energy.

He added that depressed primary energy prices could dominate next year, although margins may remain strong in refining, storage and select energy carrier segments.

Oil and gas oversupply caps prices

Oil markets are expected to face the largest imbalance, with global oversupply potentially exceeding 3 million barrels per day by the end of 2026 if OPEC+ unwinds its voluntary production cuts.

Even with China expanding its strategic crude inventories, supply growth will likely outpace demand, which places a firm ceiling on prices and making sustained oil prices above $70 per barrel unlikely.

Despite weaker prices, refinery margins are forecast to remain strong. Global refinery utilization is expected to rise as capacity growth lags demand for refined products, particularly diesel.

Europe faces the highest risk of diesel shortages, while gasoline supply along the US East Coast may also tighten due to reduced regional capacity.

In the United States, shale production is expected to remain resilient. Producers have improved drilling efficiency and extended well laterals, allowing output to hold steady even as oil prices hover near corporate breakeven levels around $60 per barrel of West Texas Intermediate.

Gas markets are also set for looser conditions. Global liquefied natural gas (LNG) supply is expected to increase by about 30 million tonnes in 2026, driven mainly by project ramp-ups in North America.

While Asian buyers are expected to absorb much of the additional supply, Xi Nan, Head of Gas & LNG Market Research at RystadEnergy warns that price volatility, commissioning risks and geopolitical disruptions will continue to shape the market.

Power demand rises as renewables slow

While fossil fuel markets face oversupply, the power sector is confronting a different challenge: rising demand paired with slowing renewable growth.

Global renewable capacity additions are forecast to fall by 7% in 2026 to around 650 gigawatts, the first slowdown in more than two decades, according to ) Carlos Torres Diaz, Senior Vice President at Rystad Energy.

The decline is largely driven by reduced solar installations in China following policy changes, as well as headwinds in the US market.

At the same time, electricity demand continues to surge, particularly from data centers supporting artificial intelligence and high-performance computing.

The United States alone is expected to account for more than 40% of global data center capacity growth, alongside Canada, Brazil and Mexico.

This rapid expansion is straining existing power infrastructure, leading to grid congestion, interconnection delays and competition for utility capacity. As a result, developers are increasingly considering on-site generation solutions such as gas turbines, microgrids and battery energy storage systems.

Battery storage is expected to emerge as one of the fastest-growing segments in the energy market, helping to address mid-day oversupply from wind and solar generation and periods of low or negative power prices.

Investment, M&A and exploration at a crossroads

Despite near-term oversupply, longer-term concerns about future energy security are shaping investment decisions. Global exploration spending is expected to remain stable at just over $60 billion in 2026, with companies prioritizing high-quality assets and frontier opportunities to strengthen portfolios beyond 2030.

Upstream mergers and acquisitions are forecast to slow for a second consecutive year, with around $150 billion of opportunities currently on the market.

North America, particularly US shale, is expected to dominate deal activity, driven by consolidation among small- and mid-cap producers.

International interest remains strong in gas- and LNG-focused assets, including Argentina’s Vaca Muerta shale.

Rystad Energy’s chief economist Claudio Galimberti said the broader macroeconomic backdrop looks supportive, with easing inflation, resilient growth and continued investment in artificial intelligence.

However, geopolitical risks including the war in Ukraine, tensions in the Middle East and uncertainty around sanctions  remain a major source of volatility for global energy markets.

As 2026 approaches, the industry is entering a hybrid energy era, where fossil fuels and renewables coexist amid slower policy-driven transitions and decisions increasingly shaped by economics rather than regulation.

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