Article Summary

• Warning of a potential record global oil glut in 2026, potentially reaching 4 million barrels per day.
• The US-China trade truce is unlikely to address this projected surplus.
• Predictions of declining oil prices to new lows, with WTI crude potentially reaching the $35 per barrel range.
• Diverging analyst opinions on the size of the projected surplus, with emphasis on potential US production response to lower prices.

Oil Glut Threatens Global Market in 2026

While markets recently celebrated the trade truce between the US and China, the world's largest oil consumers, a new report has sounded the alarm about the potential for a record surplus in global oil supply by 2026. This potential surplus, which could reach 4 million barrels per day, threatens to undermine any gains from the trade deal and place downward pressure on oil prices.

Report Details and Expert Predictions

The World Bank's "Commodity Markets Outlook" report, citing data from the International Energy Agency (IEA), indicated that this potential surplus would be the largest in history. Taylor Richey, co-editor of Sevens Report Research, affirmed that the trade deal has not changed the dynamics of the actual market, and the oil surplus will still be present in 2026, putting pressure on prices.

Factors Contributing to the Oil Glut

Several factors contribute to this projected surplus, including slowing demand growth and increased oil supply, particularly from OPEC+ countries. The IEA indicated in its October report that there is already a surplus in the market of 1.9 million barrels per day. This, in addition to the gradual increases in production quotas by OPEC+ since April, is increasing pressure on supply.

Impact on Oil Prices

Oil prices have already fallen significantly this year, with Brent crude down 12.9% and WTI crude down 15.6%. The trade deal failed to cause a significant price rebound, reflecting market concerns about supply and demand fundamentals.

Predictions of Further Price Declines

Analysts have warned that the continued surplus could lead to WTI crude oil prices falling to $35 a barrel within a year. This scenario is reminiscent of the mid-2010s, when an OPEC-led price war caused sharp price volatility.

Conditions for Achieving Sustainable Oil Price Recovery

Experts believe that achieving a sustainable recovery in oil prices requires one of two things: either significant geopolitical tensions that disrupt supplies, or a sudden acceleration in global economic growth that increases demand for oil. Otherwise, expectations of increased production and weak demand will continue to pressure the market.

Alternative View

In contrast, Rebecca Babin, Managing Director at CIBC Private Wealth, believes that the World Bank's forecast of a 4 million barrel per day surplus is exaggerated, and most analysts expect a surplus of between 1.5 and 2.5 million barrels per day. However, she acknowledges that a surplus of this size could lead to prices falling below $50 a barrel, but expects US producers to respond quickly to this decline, which could support prices.