OPEC FINALLY ADMITS THE SUPPLY GLUT

OPEC (Organisation of the Petroleum Exporting Countries) finally admitted what IEA (International Energy Agency) has been saying long for months now. In it’s Nov monthly report released yesterday, OPEC flipped estimates for global oil markets in the third quarter from a deficit to a surplus. World oil output exceeded demand by 500,000 barrels a day during the period, OPEC said in its latest monthly MOMR report, compared with a 400,000-barrel shortfall estimated a month ago. OPEC raised estimates for supplies outside OPEC and its allies in the period by 890,000 barrels a day, with just over half of the change driven by the US. The same report also indicated that the OPEC+ alliance pumped more crude than it estimated was needed last quarter. 

Heading into 2026, OPEC’s data does indicate a surplus, though on a more moderate scale than other forecasters. The alliance would need to produce 42.6 million barrels a day during the first quarter to balance global demand, less than the 43 million it pumped in October.

OPEC expects global oil demand to grow by 1.3 million barrels a day this year and 1.38 million barrels a day the next but these estimates remain well above the International Energy Agency's.

In response to above data set admission by OPEC which shows a further shift from it’s earlier projections of a supply deficit, Oil prices fell more than $2 a barrel on Wednesday.

A closely-watched US oil market indicator flipped into a bearish structure for the first time in about nine months, a fresh sign that a widely anticipated supply surplus is finally materializing. 

West Texas Intermediate’s prompt time-spread briefly traded Wednesday in a shallow contango, in which the nearest contract is cheaper than the next. That structure typically signals oversupply. It’s the first time the pattern has appeared since a similarly small flip in February. 

Chart 1: Oil market structure showing supply glut in immediate future

The glut indicator helped sparked the biggest intraday loss for prices in a month. Futures fell as much as 4.3% to trade below $59 a barrel. 

There have been shorter-term signs of weakness in US crude markets over recent weeks. Refiners are processing less crude, according to data from the Energy Information Administration, as a result of a bout of annual maintenance that has continued later into the year than usual. Inventories at the storage hub of Cushing, Oklahoma have risen in each of the last two weeks, though they remain at relatively low levels historically. 

Other instruments linked to physical markets have also softened. The roll between the nearest two months of MEH crude, a key pricing hub on the Gulf Coast from which cargoes are exported to global markets, also slipped into contango in recent days.

The North Sea oil benchmark that is fed partly by supplies from the US has also weakened, as the softer US market coincides with loadings in the region that are set to hit the highest in eight years.

Elevated freight costs are also making it harder to export US crude overseas, bolstering supplies on the Gulf Coast and lowering prices. The cost of a super tanker hauling crude from the US Gulf to Asia is $13.4 million, close to the highest since 2022. 

IEA in it’s last month report has already warned about the impending supply glut. IEA had said that the record oversupply of oil will be bigger than previously estimated and the excess is already starting to build up on ocean going tankers. World oil supply will exceed demand by almost 4 million barrels a day next year, an unprecedented overhang in annual terms, the IEA said in its last monthly report in Oct. Its predicted surplus is up roughly 18% from previous month Sep’s estimate, as the OPEC+ alliance continues to revive output and the outlook for the group’s rivals in 2026 strengthens. 

While inventories have piled at a brisk clip of 1.9 million barrels a day this year, their impact on prices has been mitigated by China scooping up the majority, according to the IEA’s Oct report. That’s beginning to change as a surge in Middle East exports pushes the volume of oil on the water to the highest level in years, the IEA had said.

As the significant volumes of crude oil on water move onshore to major oil hubs, crude stocks look set to surge. IEA had also trimmed consumption growth estimates slightly for this year, and boosted non-OPEC supply estimates for this year and next.

The IEA’s estimate for oversupply in 2026 would be the biggest ever across a year. There were individual months in the height of the Covid pandemic in 2020 when the excess was bigger.

Summary: Brent is headed towards sub 60 levels by year and and possibly towards 50 by H1CY26 due to the sustained supply glut. This supply glut is a result of OPEC’s drive to gain market share for the last 6 months. If Russia Ukraine ceasefire happens for some reason in near future, we can expect the US crude sanctions on Russian crude to go away leading to further supply pressure leading to further lower prices.  

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