The international ratings agency now sees crude oil averaging $42.50 per barrel for the rest of 2016, up from a previous forecast of $40.00.
"The current oversupply of oil appears unlikely to persist into the medium or longer term as natural field depletion and a lower number of new field developments have a greater bearing on supply," S&P said in a report on Wednesday, adding that oversupply was likely to continue well into 2017.
Crude prices have recently rallied but remain far below their peaks above $100 per barrel reached before the commodities rout that began in July 2014.
Light crude futures for November traded at around $44.85 per barrel on Wednesday, with Brent crude futures at around $46.55.
Energy commodity futures
"We continue to assume no material difference between the prices of WTI and Brent oil, based on both the feasibility of U.S. crude oil exports and our observation of this spread being generally much less than $2.5 per barrel in the year to date," S&P said.
Demand growth for oil was likely to continue for the next years, but would be "variable," S&P added.
The oil market is in heightened focus ahead of a meeting of OPEC and other major crude-producing countries in September 26-28 in Algeria. Speculation that these countries might agree to an oil output freeze to boost prices has rocked the market.