Oil’s slide below $60 underscores a market dominated by inelastic supply and strong demand. With US output at record highs, OPEC+ reluctance to cut aggressively and China’s consumption shifting to petrochemicals, fundamentals point to prolonged softening.
Why are oil prices under pressure?
The recent recession has been attributed to a persistent imbalance between supply and demand. Despite geopolitical uncertainties and sanctions on Russia, global production has increased, overwhelmingly moderating consumption growth. Inventories have been building steadily for months, indicating that the market is comfortably supplied. Technical factors fueled the decline, triggering algorithmic selling as Brent and WTI breached key support levels.
Global Supply Drives Demand: What’s Behind the Boom?
Global oil supplies have risen by a staggering 6.2 million barrels per day (bpd) since January, reaching 108.2 mb/d in October. The increase is almost evenly split between OPEC+ and non-OPEC producers. Non-OPEC countries such as the US, Brazil and Guyana are major contributors in shale and offshore projects aided by technological advances and cost efficiencies.
The US output story and its ripple effect
The United States remains the world’s top producer, with output hitting a record 13.86 million bpd in November. The surge has tilted the global balance, forcing OPEC and its allies to defend market share rather than prices. Despite the voluntary cuts, OPEC+ has gradually lifted production controls for fear of a long-term erosion of influence. This has resulted in market volatility with crude, where US shale acts as the de facto swing producer, responding quickly to price signals.
Why can’t OPEC+ move prices like before?
Historically, OPEC’s coordinated cuts can stabilize prices. But non-OPEC supplies and internal divisions have weakened its hold in recent years. The group’s latest strategy—prioritizing market share over price—echoes the 2014 playbook. Analysts are skeptical that OPEC+ will implement deeper cuts in 2026, with most expecting output to remain flat despite rising output. Structural changes, including the rise of US shale and alternative energy, have weakened OPEC’s pricing power.
Demand Still Lags: What’s Holding It Back?
Global oil demand growth remains modest by historical standards. The International Energy Agency (IEA) projects a gain of just 790,000 bpd this year and 770,000 bpd in 2026 – well below the pre-pandemic average. Factors include slow industrial activity, weak freight volumes and rapid adoption of electric vehicles. In advanced economies, demand is flat, while emerging markets show uneven recovery. High-frequency indicators, such as US gasoline consumption and container traffic, confirm continued softness.
China’s role: Imports strong, consumption soft
China, once the engine of global oil demand, presents a mixed picture. Crude imports rose 8.2% year-on-year in October, as refiners ramped up runs and boosted stockpiling. However, structural changes such as rapid EV adoption, LNG-powered trucks and a slowdown in the property sector have reduced demand for the underlying fuels—gasoline, diesel, jet fuel. Petrochemical feedstocks are the main growth driver, not transportation fuels. Analysts estimate that China’s strategic reserves now exceed 1.3 billion barrels, boosting prices but masking weak organic demand.
Supply-Demand Outlook: More Surplus Ahead
The imbalance is set to continue. The IEA warns that there is a potential surplus of around 4% of global demand in 2026 if current trends continue. Global supply is forecast to increase by 3.1 mb/d in 2025 and 2.5 mb/d in 2026, while demand growth remains below 1 mb/d annually. Inventories, already at multi-year highs, are expected to climb higher over the next year, reinforcing bearish sentiment.
Price Outlook: What to expect in the coming months
Near-term prospects remain bleak. Seasonal weakness in demand, rising inventories and stagnant OPEC+ output suggest further losses. Unless there are geopolitical shocks or unexpected supply disruptions, WTI prices are likely to remain tight within $52–$75 per barrel, with downside risks. Structural factors such as the energy transition, efficiency gains and alternative fuels will prevent any sustained rally.
While short-term volatility may offer brief rallies, the overarching narrative for 2026 is abundant supply and cautious demand, likely keeping prices under pressure well into next year.
(The author is Head of Commodity Research at Geojit Investments Ltd.)
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