Oil Market May Face Worst Supply Glut in History Next Year, Is $35 Hellish Price Coming?

The trade truce agreement between China and the United States may obscure a new report's warning—global crude oil supply could experience a record surplus in 2026.

Despite the fact that China and the United States, the two largest oil consumers globally, have reached an agreement, analysts widely believe that this development cannot reverse the supply-demand imbalance in the crude oil market nor prevent oil prices from approaching their lowest levels since the COVID-19 pandemic.

Fundamentals remain bearish, warning of a 4 million barrels per day surplus.

The World Bank released a report on Wednesday titled "Commodity Market Outlook," citing data from the International Energy Agency (IEA) for its predictions.In 2026, the global daily surplus of crude oil supply may reach 4 million barrels, potentially becoming the largest annual surplus in history.

Tyler Richey, co-editor of Sevens Report Research, told Market Watch: "The U.S.-China trade agreement has not changed the current physical market landscape, and a significant oil surplus that will suppress oil prices is still expected to occur in 2026."

This expectation is highly consistent with the current market trend. The IEA's October report released earlier this month pointed out that due to slowing demand growth and "rapid" increases in crude oil supply, the global crude oil market has formed a daily supply surplus of 1.9 million barrels since the beginning of this year. Meanwhile, OPEC+ has been raising production quotas monthly since April, further exacerbating market supply pressure.

As of this Thursday, the December delivery on the London Intercontinental ExchangeBrent crude oilThe futures fell by 3% cumulatively for the current month, December delivery on the New York Mercantile Exchange.WTI Crude OilFutures settled at $60.57 per barrel, with a year-to-date decline of 15.6%, while Brent crude oil prices fell to $65 per barrel, with a year-to-date decline of 12.9%.

The boost in market sentiment brought by the trade agreement has gradually faded, and crude oil prices have only risen by a few cents after the announcement of the agreement, failing to gain sustained support. The market focus is shifting back to supply and demand fundamentals.The risk warning of an oil surplus in 2026 may become a core factor affecting future oil price trends.

Oil price downside risk intensifies, potentially dropping to the $35 range.

The continued fermentation of supply and demand imbalance has triggered pessimistic expectations for oil prices. Rich warned that if the anticipated massive supply surplus in 2026 becomes a reality,The benchmark U.S. oil price, WTI crude, may fall to around the $35 per barrel range within a year.This prediction is based on the price trends in the crude oil futures market since the beginning of this year and refers to the oil price fluctuation cycle triggered by OPEC in the mid-2010s to compete for global market share.

It is worth noting that the last time WTI crude oil closed at $35 per barrel or below was on May 28, 2020. On April 20, 2020, WTI crude oil experienced an unprecedented negative price settlement due to the dual impact of plummeting demand and inventory backlog.

Rich emphasized that.For a sustainable rebound in the crude oil market to occur, one of two conditions must be met: either a supply-side shock triggered by escalating geopolitical tensions or a sudden acceleration in global economic growth leading to improved oil consumption demand in the United States and globally.Otherwise, "the clear expectation of increased production and the stable or even weak demand outlook will continue to tilt the market fundamentals towards the bearish side."

Rebecca Babin, a senior energy trader and managing director at CIBC Private Wealth, offered a different perspective. She stated that most Wall Street analysts predict an oversupply of crude oil between 1.5 million and 2.5 million barrels per day by 2026.The World Bank's prediction of 4 million barrels per day is considered an upper limit and is still regarded as an "outlier."

Babbin also admitted that,If large-scale surplus becomes a reality, the price of WTI crude oil could fall below $50 per barrel. "However, at that time, U.S. producers are likely to respond quickly, which could provide some support for oil prices."