The price of West Texas Intermediate (WTI) crude has fallen to a recent close of about US$60 per barrel from its high of US$120 in June of 2022. Closer to home, Western Canadian Select (WCS) has dropped during that time period to currently sit at US$48 from a high of just over US$100. What is causing this trend and what is the outlook for this global commodity?
Supply/demand
According to the International Energy Agency (IEA), the global oil market is set for strong supply growth and weak demand growth in the near- to mid-term, meaning a risk of oversupply. The IEA sees a potential surplus of 2.35 million barrels per day (mbpd) in 2025 and 4 mbpd in 2026. Global oil supply is projected to be around 106.1 mbpd for this year, an increase of about 3 mbpd over 2024, with another 2.4-mbpd increase projected for 2026. Global demand is estimated at 103 to 104 mbpd in 2025.
The United States remains the world’s largest oil producer at 22 mbpd, followed by Saudi Arabia (12 mbpd), Russia (11 mbpd), Canada (6 mbpd), and China (5 mbpd). North American production is driven primarily by shale (U.S.) and oil sands (Canada), while Saudi Arabia (Ghawar Oil Field) and Russia (Western Siberian reserves) anchor OPEC+ supply discipline.
Fifty-seven percent of global oil production is consumed in transportation with another 16 per cent used for residential or industrial heat or power generation. Petrochemical use has been climbing annually and sits at 18 per cent, while aviation accounts for 9 per cent of consumption.
What has kept the price flat so far?
Given the excess supply, why haven’t prices dropped further? One likely factor is China’s additions to its oil stockpiles. China does not report data on its oil inventories, however, based on compiled imports, exports, refining, and oil inventory data, it looks like China has accumulated significant oil inventories this year. China’s inventory builds appear to have acted as a source of demand, thereby limiting downward price pressure.
What about OPEC+?
The Organization of the Petroleum Exporting Countries and its allies, known collectively as OPEC+, agreed on Sunday to raise output by a small 137,000 barrels per day (bpd) in December and to pause increases in the first quarter of next year. OPEC+ is shifting strategy from deep cuts (used in 2022-23) toward gradually returning supply, seemingly with an aim to regain market share rather than strictly defending high prices.
The switch to EVs
Gasoline vehicles account for 41 per cent of global oil consumption but one in 10 cars on Chinese roads are now electric. The IEA expects to see 20 million electric vehicles sold in 2025 or 25 per cent of total car sales for the year. Sales in the first quarter of 2025 were up 35 per cent over the same period in 2024. With the average gasoline-powered vehicle using 475 gallons of gas annually and a projected switch of four million vehicles from gas to electric in 2025, the demand for gasoline should drop 1.9 billion gallons or 45 million barrels of oil equivalent per year. Remember that compares with oil production of 105 million barrels daily, so it’s a small yet growing change in demand.
WSC and pipeline developments
Over the past 10 years the price of WTI has been between US$4.34 and US$45.93 higher than the price of WCS. The average spread between WTI and WCS for the last five years is US$15.85 per barrel. Both transportation costs and grade account for the majority of the price difference. WTI is a lighter oil (based on API gravity) and sweeter (much lower sulfur content), both factors making it easier to refine.
The Trans Mountain Expansion began service in 2024, tripling the pipeline‘s capacity to 890,000 b/d and opening Pacific tidewater access. This has narrowed the WTI–WCS differential to around US$11–13/bbd, improving the price fetched for Canadian oil sands producers. Other projects include Enbridge’s Mainline optimizations (first phase increase in production by 150,000 b/d) and the Line 5 Great Lakes Tunnel under the straits of Mackinac, to enhance reliability for crude and natural gas liquid flows into Ontario and the U.S. Midwest.
Oil target prices
The analyst consensus anticipates a modest price decline into 2026 amid slower demand growth and rising non-OPEC supply. EIA forecasts Brent (mostly oil from the North Atlantic) at US$52 and WTI at US$50 in 2026, barring major geopolitical disruptions. Key drivers for the 2025–26 period include OPEC+ compliance, non-OPEC supply growth (U.S., Brazil, Guyana, Canada), Chinese demand trends, petrochemical margins, inventory levels, and geopolitical disruptions. Global inventories are expected to rise modestly through 2026, keeping markets in mild contango – or higher expected future volumes – absent new shocks.
More about the author
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.