Oil market caught between glut predictions and elusive proof

A curious dynamic has taken hold of the oil market: many stakeholders are on the edge of their seats, awaiting a widely predicted glut. The usual overhang signals – the forward curve in a contango, softer spot differentials for physical barrels, and rising onshore and floating inventories, have been faint to mixed, fuelling debate and confusion.

The drumbeat has grown louder with the start of the fourth quarter, as several prominent forecasters have been calling for a sharp swing into surplus towards year-end, extending into the first quarter of 2026. Their estimates cluster around 2-4 million b/d of oversupply over that six-month window, with some projecing an even larger surplus, well above seasonal norms.

Sizeable and sustained swings to under- or over-supply are a first-order force in the global oil market, feeding straight through to prices, shaping short- to medium-term business decisions, and determining margins across the value chain. Anticipating these turns and positioning early can help market participants ride the wave rather than be wiped out.

So, being ahead of the curve is desirable. But a few attributes make the current glut anticipation unusual, not least that it has been building since mid-year, which is an unusually long wait.

There is also a striking divide between those convinced an above-normal oversupply is nigh, and those who see none to a modest excess within seasonal range.

The US Energy Information Administration, in its latest monthly outlook released this week, projects supply exceeding demand by an average 2.6-2.7 million b/d in Q4 and Q1. The Paris-based OECD energy policy advisor International Energy Agency sits at the most bearish end, forecasting 3 million b/d and 4.3 million b/d of oversupply for the quarters in its September outlook.

Wall Street is split too. Goldman Sachs and J.P. Morgan predict a surplus in the range of 1.8-2.4 million b/d from late-2025 into 2026. Morgan Stanley estimates 0.8 million b/d surplus in Q4 and about 1.1 million b/d in H1 2026.

OPEC analysts don’t publish forward-looking global balances but are closest to neutral. Our calculations using their short-term forecasts of world demand and expected production outside OPEC+ point to a Q4 deficit of around 590,000 b/d and a modest Q1 surplus of 510,000 b/d.

But the glut narrative has dominated headlines and sentiment. That camp has been more vocal and is helped by market psychology: The “extremity bias” in forecasting overweights bold, tail-event calls, and the “availability cascade” reinforces attention as repeated dramatic claims become more memorable.

That backdrop explains crude’s panicky sell-off ahead of the OPEC/non-OPEC Group of 8 meeting on October 5 amid rumours of a November target boost of as much as 500,000 b/d, accelerating the phase-out of the 1.65 million b/d tranche of cuts.

The OPEC+ G8 instead settled on a token 137,000 b/d increase for November, maintaining the pace from October, which halted crude’s downward spiral. Brent clawed back only a fraction of the prior week’s nearly 9% drop and has since settled back into the $65-70/barrel band that has held for much of the past three months. Those calling for a slide into the $50s are still waiting.

In the meantime, some glut proponents are holding the banner high, cherry-picking data to sustain the case.

The standard measure of oil in short-term floating storage – currently at a two-year high of around 162 million barrels as per Vortexa – is set aside in favour of the far larger “oil in transit” number of 1.2 billion barrels, the highest in nine years. But “in transit” simply counts barrels moving from production to consumption, not conclusive evidence of surplus.

Likewise, the forward curve remains in backwardation – the Brent M1/M2 spread near 50 cents/barrel and M1/M12 roughly double that – but the spotlight is trained on the need for a deeper-than-usual contango this time around because storage costs are higher.

The monthly rise in OPEC+ output, expected as cuts unwind, is magnified, but the fact that the growth still lags the hike in targets is underplayed.

Routine signals of softer demand and rising supply are underscored, while contrary data is downplayed. US oil production notching a fresh high in a recent month gets topbilling, while the broader trend of slower growth as shale producers scale back well drilling and fracking to protect margins gets less airtime.

Physical spot crude premiums – often the canary when balances shift – remain mixed, and Saudi Aramco keeping its Asia OSPs broadly unchanged for November suggests a neutral stance. Pro-glut commentary tends to gloss over these indicators.

None of this is to claim the market will stay balanced or only tilt to a mild-to-moderate surplus in the months ahead. It is to argue for caution: When a narrative lacks corroboration across data, a more circumspect, measured approach is warranted.