Suffering the third straight weekly loss, oil markets presented a gloomy picture at the end of the week, last Friday. The growing oil glut and concerns of a global economic slowdown pushed crude prices to near their lowest level in five years. Helping the cause was the agreement between Israel and Hamas. This took off some geopolitical premium from oil prices.

Oil glut is around the corner. The global oil market faces a surplus of as much as four million barrels per day (bpd), the Paris-based International Energy Agency (IEA) said in its Monthly Oil Report last Tuesday. In the IEA’s view, supply is rising far faster than demand. This year, it expects supply to go up by 3m bpd, up from 2.7m bpd as previously thought. Next year, supply will grow by a further 2.4m bpd, as the Organisation of the Petroleum Exporting Countries (OPEC) and its allies in the expanded OPEC+ continue to add barrels to the market. OPEC reported an increase of 630,000 bpd in its September output.

Meanwhile, the IEA also trimmed its forecast for world demand growth this year to 710,000 bpd, down 30,000 bpd from its previous forecast, citing a more challenging economic backdrop. “Oil use will remain subdued over the remainder of 2025 and in 2026, resulting in annual gains forecast at around 700,000 barrels per day in both years,” the IEA said in the monthly report.

Some Wall Street banks and other observers are also pointing to a major supply surplus in the coming months. Consequently, Goldman Sachs Group Inc. expects Brent to average $56 next year.

Recently declining crude prices due to a rising production levels across OPEC+ could help ease Pakistan’s ballooning budgetary deficits

And while consensus remains bearish, given expectations for a surplus, “conviction differs on the depth of downside”, Citigroup Inc. analysts said in their report. “Some clients doubt that a price floor at $60 a barrel for Brent crude oil would be enough to induce a supply-and-demand reaction to balance a global liquids market generally seen heading for a surplus,” Citi reported.

“Within the energy complex, consensus sees fundamentals turning increasingly bearish on both crude oil and natural gas, but geopolitical risks make it hard to short these markets in size,” Citi added.

Bloomberg too reported that the decline in oil prices has been driven mostly by expectations of a glut as OPEC+ unwinds its production cuts, saying that the amount of oil in transit also points to a looming glut. The volume of seaborne crude oil last week hit 1.25 billion barrels, the highest since the start of the Covid-19 pandemic, according to analytics from tracking firm Kpler. Apart from the pandemic era, this is the highest level of oil being held at sea; or “oil on water”.

China, meanwhile, also continues stockpiling crude, absorbing most of the estimated excess so far this year, Irina Slav said in the piece in Oilprice.com. But the exact volume is difficult to gauge. Markets are also unsure about the volume of sanctioned oil being traded in the markets.

In the meantime, despite recent Ukrainian strikes on the Russian energy infrastructure, its crude output is increasing. Russia has raised its oil production close to its output quota in the OPEC+, Russian Deputy Prime Minister Alexander Novak said the week before. “Production is growing,” Russian news agency Interfax quoted Novak as saying. Russia’s oil production in August averaged 9.173m bpd. This was just about 90,000 bpd below its OPEC+ quota.

‘Oil use will remain subdued over the remainder of 2025 and in 2026, resulting in annual gains forecast at around 700,000 barrels per day in both years’

Oil prices rose briefly early last week, after assurances that US President Donald Trump would meet his Chinese counterpart, Xi Jinping, later in October, easing the flare-up in trade tensions between the world’s two top economies. The possibility of talks between Russian President Putin and President Trump also helped calm the market. But the effect was short-lived.

Yet, OPEC stays defiant. It remains bullish on global oil demand growth for this year and the next. In its Monthly Oil Market Report for October, published last Monday, OPEC said it expects global oil demand to grow by about 1.3m bpd this year from 2024, and reach, on average, 105.1m bpd this year and 106.5m bpd next year. However, the OPEC report also concedes to uncertainties “including inflation levels, monetary tightening measures and sovereign debt levels that need to be monitored closely”.

US energy major ExxonMobil also somewhat agrees. It sees a tighter oil market in the medium-to-long term, particularly in the absence of further investments in unconventional oil and gas assets, Exxon Chief Executive Darren Woods said early last week. Oil market oversupply is likely to be a short-term issue, with demand from emerging economies set to make meeting global energy demand more challenging in the medium to longer term, Woods told a conference in London.

Signals are mixed. Yet, most point to the coming glut. With energy import bills, the largest drain on their foreign exchange outflow, for energy-importing countries such as Pakistan, this is music to their ears and could help ease their ballooning budgetary deficits.

Will this help us show some spine on the global stage? Let’s wait and see.n

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

X: @rhusainsyed

Published in Dawn, The Business and Finance Weekly, October 20th, 2025