Supply hangover, dubbed by some as ‘super glut’, is to be the defining feature of the oil markets in 2026. It is set to dominate the oil markets in the New Year. Such is the level of projected glut that the US military buildup around Venezuela, the Fed rate cut, and the ongoing Russia-Ukraine war have failed to provide any significant support to the oil markets.

The global benchmark Brent crude is already down 20 per cent this year, trading at nearly $60 a barrel. Today, oil is as cheap as it was about a decade ago, without adjusting for inflation. Next year could be even bleaker.

Consensus about a large oversupply has emerged. The International Energy Agency is citing a market surplus of around 3.84 million barrels per day (bpd). Though this is down from the 4.09m bpd surplus projected in November, it is still enough to keep the market under pressure. Meanwhile, the globally observed inventories have also risen to four-year highs.

Adding to the glut scenario is the fact that there are an additional 1.4 billion barrels of oil “on the water.” That is 24 per cent higher than the average for this time of year between 2016 and 2024, said Carol Ryan of The Wall Street Journal, citing data from oil analytics firm Vortexa. The data measures shipments that are on sea, ready to be unloaded at a port, or cargoes that haven’t yet found a buyer. Most of this oil is coming from Iran, Russia, and now Venezuela.

Virtually all of the world’s biggest traders see the oil market in a state of oversupply early next year, with prices poised to keep falling

A consensus has emerged that average oil prices during the new year will fall below $60 per barrel. The US Energy Information Administration (EIA) and Wall Street banks are looking at the fundamentals and remain bearish on oil for the next year, forecasting prices to average below $60 per barrel in 2026.

In its latest Short-Term Energy Outlook, the US EIA says that global oil inventories will continue to rise through 2026, putting downward pressure on oil prices. The EIA forecasts that Brent crude oil prices will dip to an average of $54 per barrel in the first quarter of 2026 and average $55 per barrel for the year. Still, the EIA’s Brent forecast for 2026 is $3 per barrel higher than in the previous month’s outlook. This upward revision is attributed to the Chinese stockpiling and the intensified sanctions on Russia.

Oil is as cheap as it was about a decade ago, without adjusting for inflation, and next year could be even bleaker

However, there is a glitch in this assumption. What if Russia and Ukraine reach a deal and, as a result, sanctions on Russian oil are lifted? For the moment, this seems plausible, and this could mean additional flow of (Russian) oil into the market, adding to the existing pressure on the oil markets.

ABN AMRO Bank, in its Energy Market Outlook for 2026, also highlighted that weak global demand growth and rising Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC supply have resulted in an oversupplied market.

“All in all, we anticipate the supply glut — caused by weaker demand growth and increasing supply — to persist throughout 2026, with its impact steadily pushing crude prices lower,” Tsvetana Paraskova said in an Oilprice.com piece, quoting Moutaz Altaghlibi, senior energy economist at ABN AMRO Bank.

ABN AMRO forecasts Brent crude to average $58 per barrel in the first quarter of 2026, gradually falling to $52 per barrel as the glut worsens, reaching $50 per barrel by the end of the year, with a year average of $55 per barrel.

Virtually all of the world’s biggest traders also see the oil market in a state of oversupply early next year — the only question is by how much. Trafigura, one of the world’s top commodities traders, says oil could be in the $50s through the middle of the year before recovering by the end of 2026.

Other banks and analysts concur that the glut will be the key theme in fundamentals next year. Ole Hvalbye, commodities analyst at SEB bank, said, “We continue to see the path of least resistance as skewed to the downside.”

Oversupplied markets will keep oil prices under pressure next year. The US benchmark will average below $60 per barrel, while Brent will average about $62.23/barrel in 2026, a Reuters poll of analysts and economists concluded at the end of November.

Goldman Sachs has projected Brent to average $56 per barrel and West Texas Intermediate to average $52 a barrel in 2026.

The oil market is facing a significant oversupply, dubbed a “super glut”. Surging production from non-OPEC countries, the US, Brazil, and Guyana, and slower-than-expected demand growth, especially from China, are causing oil prices to fall sharply, with Brent crude dipping below $60 per barrel.

The reality is that the world is awash with oil, and prices are poised to keep falling in 2026.

With oil imports being the largest cause of cash outflow from Pakistan’s budget, lowering oil prices is good news for the country’s faltering economy. Whether that saving is passed on to the common user or not is completely another issue.

The writer is an energy analyst and has delivered talks at the Department of Energy in Washington and the International Energy Agency.

Published in Dawn, The Business and Finance Weekly, December 29th, 2025