Why are oil prices under pressure?The recent slump has been attributed to a persistent imbalance between supply and demand. Despite geopolitical uncertainties and sanctions against Russia, global output has soared, overwhelming modest consumption growth. Inventories have been steadily building for months, indicating that the market is comfortably supplied. Technical factors have amplified the decline, with algorithmic selling triggered as Brent and WTI breached key support levels.
Global supply exceeds demand: what’s behind this wave?
Global oil supply has risen by as much as 6.2 million barrels per day (bpd) since January, reaching 108.2 million barrels per day in October. This increase is almost evenly split between OPEC+ and non-OPEC producers. Non-OPEC countries such as the US, Brazil and Guyana have made significant contributions, aided by technological advances and cost-efficiency in shale and offshore projects.The US output story and its ripple effectThe United States remains the world’s largest producer, with production reaching a record 13.86 million barrels per day in November. This wave has tipped the global balance, forcing OPEC and its allies to defend their market share rather than prices. Despite voluntary cuts, OPEC+ has gradually lifted production cuts, fearing an erosion of long-term leverage. This has resulted in a market flooded with crude oil, with US shale acting as the de facto swing producer, responding quickly to price signals.
Why OPEC+ cannot move prices as before
Historically, OPEC’s coordinated cuts have been able to stabilize prices. But in recent years its hold has weakened due to increasing supply from non-OPEC countries and internal divisions. The group’s latest strategy – prioritizing market share over price – reflects its 2014 playbook. Analysts doubt OPEC+ will make deep cuts in 2026, with most expecting output to remain steady despite looming surpluses. Structural shifts, including the rise of US shale gas and alternative energy, have diluted OPEC’s pricing power.
The question still remains: what’s holding this back?
Global oil demand growth remains modest by historical standards. The International Energy Agency (IEA) expects gains of just 790,000 barrels per day this year and 770,000 barrels per day in 2026 – far below pre-pandemic averages. Factors include slower industrial activity, weak freight volumes and the accelerated adoption of electric vehicles. Demand is flat in advanced economies, while emerging markets are showing an uneven recovery. High-frequency indicators such as US gasoline consumption and container traffic confirm continued weakness.
China’s role: imports strong, consumption weak
China, once the engine of global oil demand, is showing a mixed picture. Crude oil imports rose 8.2% year-on-year in October as refiners ramped up production and stockpiling accelerated. Yet underlying demand for fuels (gasoline, diesel, jet fuel) has stalled due to structural changes such as the rapid adoption of electric vehicles, LNG trucks and a slump in the real estate sector. Petrochemical raw materials remain the main growth driver, and not transport fuels. Analysts estimate that China’s strategic reserves now exceed 1.3 billion barrels, dampening prices but masking weak organic demand.
Supply and demand prospects: More surpluses are in the pipeline
The imbalance will continue. The IEA warns of a potential surplus of almost 4% of global demand by 2026 if current trends continue. Global supply is expected to increase by 3.1 million barrels per day in 2025 and 2.5 million barrels per day in 2026, while demand growth remains below 1 million barrels per day annually. Inventories, already at multi-year highs, are expected to rise further next year, reinforcing bearish sentiment.
Price Outlook: What to Expect in the Coming Months
The near-term outlook remains bearish. Seasonal demand weakness, rising inventories and steady OPEC+ production point to further negative impacts. Unless geopolitical shocks or unexpected supply disruptions occur, WTI prices are likely to remain stuck in the $52 to $75 per barrel range, with lower risks. Structural factors such as the energy transition, efficiency gains and alternative fuels will stifle any sustained rally.
While short-term volatility may provide a brief boost, the overarching story for 2026 is one of abundant supply and cautious demand, which will likely keep pressure on prices well into next year.
(The author is Head of Commodity Research at Geojit Investments Limited)
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