Investors and analysts have spent much of the year embracing the view that the oil market, which has been in oversupply mode, is heading straight for a glut through 2026 — and that glut could reach as high as 4 million barrels per day (b/d) and depress global prices even further along the way.
The bottom line: The oil glut — currently sitting around 1.9 million barrels per day — will almost certainly continue through 2026. But thanks to geopolitical curveballs, it may not grow to be quite as large as previously expected.
For the oil sector, a lighter glut could mean support for prices in an industry already hurting. For consumers, it could mean slightly higher-than-expected prices at the pump for gasoline, as crude oil makes up roughly half of the cost.
Futures on Brent crude (BZ=F), the global benchmark, are down more than 13% since the beginning of the year, hovering around $64. The US benchmark, West Texas Intermediate (CL=F), has done the same and is down more than 14% to trade around $60.
But the two benchmarks have spent the last six months trading relatively flat.
On the one hand, demand has remained relatively strong throughout the year. China has been stockpiling reserves beyond its domestic need, which has “soaked up a lot of the surplus” that might have otherwise pushed prices down, said Jim Burkhard, vice president of oil markets, energy, and mobility at S&P Global.
Outside of China, Middle Eastern demand for the year held firmer than expected, and India has upped its purchases as Russian crude got cheaper, said Mizuho oil and gas senior analyst Nitin Kumar.
At the same time, the OPEC+ cartel, a group of major oil-exporting countries, has raised its production targets every month for six months straight, most recently agreeing in early October to bump up production by another 137,000 b/d. There are now close to 1.4 billion barrels globally sitting on tankers at sea after a record 10-week-long run-up, and China can only hold so much oil, even as the country looks to build more storage capacity.
“In one sense, the fundamentals are healthy,” Burkhard said. “But there is a wave of oil that is hitting the market now … that’s going to need to find a home.”
The most recent projection from the International Energy Agency predicts that oversupply could reach an “untenable” four billion b/d in 2026, doubling the average surplus level of 1.9 million b/d between January and September.
“The global oil market may be at a tipping point” for crude prices as the surplus pulls further and further ahead of demand, said Toril Bosoni, the head of the IEA’s oil industry and markets division. Either producers such as OPEC+ are going to have to slow down their production, Bosoni said, or other countries are going to need to begin filling up their stores at a quicker pace so that the market’s supply and demand can rebalance to a healthier level.
Glut buster? An oil rig in eastern Siberia. (AP Photo/Sergey Ponomarev, File) ·ASSOCIATED PRESS
The notion of a large incoming glut remained relatively unchallenged until Oct. 22, when the Treasury Department announced its wave of sanctions against Rosneft and Lukoil. Brent and WTI futures both climbed by more than 5%, rising to their biggest weekly gains since June.
Together, Rosneft and Lukoil export roughly 3 million b/d of crude oil, according to Goldman Sachs. Just how much of that supply will come off the market is a major swing factor for global pricing.
Right now, Goldman Sachs analysts are predicting that around 500,000 to 600,000 b/d of oil is at risk of being taken off the market in 2026. If that holds true, the analysts wrote, they see prices falling roughly 15% to $56 and $52 per barrel for Brent and WTI crude, respectively, further hammering an industry already operating under painful margins.
But if the sanctions were to be applied much more severely and cut Russian supply by 1.5 million b/d, global supply would sharply drop off and the incoming glut would be much tighter, pushing prices to above $84 and $70 before settling at $73 and $63, respectively.
The linchpin, Burkhard said, is the threat to buyers of Russian barrels. Under the Treasury’s sanctions, those companies could face anything from a fine to being cut off from the US financial system. Major Indian buyers of Russian oil have already said they plan to “reduce their crude imports in the near term due to the sanctions,” Rystad analysts wrote.
In other words, it’s not that Russia won’t look to export its oil but that no one will want to risk buying it.
When President Trump placed strict sanctions on Iranian oil in 2018 during his first term, Brent prices jumped to around $86 per barrel. But just before those measures went into effect, Trump granted waivers to most major buyers, and prices fell to around $50 within two months.
Meanwhile, the oversupply in 2025 has also not been as severe thus far as had been predicted, Mizuho oil analyst Kumar told Yahoo Finance. Kumar said that tells him next year’s glut also likely won’t be as bad as the market has been thinking.
“There is this underlying strength in demand,” Kumar said. “A much-anticipated build-up of global crude inventories is finally showing up, but oversupplied conditions could be short-lived.”
The oil industry will be hoping for prices to hold steady through some magic combination of market factors, even if that’s unlikely. The breakeven price at which US oil and gas companies can turn a profit with drilling sits at $63 per barrel, according to respondents in a recent Kansas City Federal Reserve survey.
The point at which prices are strong enough to encourage an increase in drilling is even higher, survey respondents said, at $78 per barrel — a mark WTI hasn’t seen since January.
At the end of the day, the market’s fundamentals look strong on their face, said S&P Global’s Burkhard. Just how big a glut will emerge is instead largely going to be driven by the specter of the US Treasury’s sanctions, and just how much risk the world’s producing nations see in oversupply.
“It’s fear and fundamentals,” S&P Global’s Burkhard said. “Which one is going to win out now?”
Fear and fundementals: A tanker unloads imported crude oil at the Qingdao Port crude oil terminal in Qingdao, Shandong Province, China, on August 10, 2025. (Photo by Costfoto/NurPhoto via Getty Images) ·NurPhoto via Getty Images
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
Click here for in-depth analysis of the latest stock market news and events moving stock prices
Read the latest financial and business news from Yahoo Finance
