More and more analysts expect the oil market to move into significant surplus next year. The IEA sees oversupply of 3.3 mbd in 2026, while the EIA forecasts 1.7 mbd. Independent forecasts paint a similar picture: investment bank Macquarie expects around 3 mbd of surplus in late 2025 and early 2026, and Rystad consultancy sees 2.2 mbd next year. If these predictions are correct, crude prices could come under heavy pressure, with some saying they could fall to $50 a barrel or even lower.
The glut is driven both the supply and demand factors. OPEC+ has already finished unwinding its first round of cuts, formally worth around 2.2 mbd, though the actual production gains have been smaller. More importantly, the group has formally decided to start unwinding a second tranche of 1.65 mbd, sooner than originally planned. On top of that, non-OPEC+ supply is expected to grow by 1.4 mbd this year and by another 1 mbd in 2026, led by the Americas. Demand growth, on the other hand, remains limited, estimated by the IEA at just 740kbd kbd this year and 700kbd in 2026. Other analysts are showing somewhat stronger numbers, with Rystad and the EIA placing 2026 demand growth at roughly 1.05 mbd on average.
Despite this, oil prices have not fallen off the cliff. Benchmarks are well above Covid lows, and the futures curve is still in backwardation, which perhaps is surprising considering the oversupply is supposed to be building.
China is a big reason why. The IEA says Chinese stockpiling peaked at 0.9 mbd in Q2 2025 before easing this quarter. Stronger demand for crude has been helped by lower prices compared with last year. Some reports suggest that new storage capacity is being added, with more coming in 2026. This makes it likely China will keep building reserves into next year.
Geopolitical factors also play a significant role. Around 27% of China’s seaborne crude imports last year came from Iran, Russia, and Venezuela, producers under heavy Western sanctions. The list of restrictions announced this year is already long and looks set to grow further. The EU is now preparing its 19th sanctions package, which could target private refiners and traders handling Russian barrels. At the same time, the US has kept the threat of secondary sanctions on the table and in August raised tariffs on Indian goods by 50% in response to its continued purchases of Russian crude. With this pressure building, China has every reason to keep building its inventories.
Whilst intensifying sanctions pose a clear downside risk to Russian supply that cannot be overlooked, if the oil glut does materialise, inventories will also be built elsewhere. The US would have an opportunity to refill its Strategic Petroleum Reserve, which remains well below pre-2022 levels. Another possibility is that low crude prices and strong margins could encourage higher refining runs, putting more into product stocks first. Floating storage is another possibility, although today’s high VLCC freight rates make this less attractive.
Ultimately, however, stock building cannot last forever. If the oversupply continues and prices fall further, the imbalance will not be sustainable. Producers will eventually be forced to cut output, with negative consequences for the tanker demand.
Data source: Gibson Shipbrokers