OPEC warns combined with a significant increase in U.S. oil inventories, is the "oversupply" in the crude oil market really here?

Various signs indicate that the global oil supply surplus, long discussed in the market, may have arrived. From OPEC's unexpectedly pessimistic forecasts to the key U.S. futures curve falling into a bear market structure, and the continuously increasing inventory data, a series of signals point to one conclusion: global supply is exceeding demand, putting sustained pressure on oil prices.

The latest and most impactful development comes from the Organization of the Petroleum Exporting Countries (OPEC). In its latest monthly market report, the organization revised its global supply-demand balance estimate for the third quarter of this year from a previous shortage to a surplus. This shift triggered a strong market reaction, with Brent crude futures plunging nearly 4% in the previous trading day, and West Texas Intermediate (WTI) falling over 4%.

In the U.S. market, signs of ample supply are particularly evident. The WTI spot price spread, a key market indicator, has fallen into a "contango" state, where forward contract prices are higher than near-term contracts, typically signaling sufficient short-term supply. Meanwhile, according to data cited by Reuters from the American Petroleum Institute (API), U.S. crude oil inventories recorded another increase last week.

This series of changes has significant implications for the global economy and investors. If oil prices continue to decline, prices for refined products like gasoline are expected to drop, thereby alleviating global inflationary pressures, which is undoubtedly beneficial for central banks and consumers worldwide. For U.S. President Trump, who has long advocated for lower energy costs, this could also be seen as a policy victory.

Market Indicators Flash Red

The signs of a global oil supply surplus are most pronounced in the U.S. market.

The futures curve for WTI crude oil shows that most months in 2026 are in a contango structure, indicating weak demand for spot crude oil. The healthy supply situation in the U.S. is also reflected in export data; according to government data, crude oil exports in October reached their highest level since July 2024.

In contrast, the futures curve for the global benchmark Brent crude has remained flat after March next year, which also suggests weak spot demand, but the structural differences between the two benchmark contracts reflect varying degrees of supply surplus in different regional markets. Other indicators also show signs of weakness, with the Brent-Dubai spread (EFS), which measures the value of North Sea crude relative to Middle Eastern benchmark crude, turning negative this week, indicating it is trading at a discount.

Supply Side Turns Collectively

Global market observers widely expect a supply surplus next year, and OPEC, which had long maintained a healthy demand narrative, has also changed its view. In its latest report, the organization stated that due to increased production from OPEC+ (the oil-producing country alliance including Russia), global oil supply is expected to slightly exceed demand in 2026 OPEC's shift in perspective echoes predictions from other major institutions. According to market participants citing API data, U.S. crude oil inventories increased by 1.3 million barrels for the week ending November 7. The official U.S. Energy Information Administration (EIA) inventory data will be released later on Thursday, and the market generally expects it to confirm the trend of increasing inventories.

More importantly, the EIA has raised its forecast for U.S. oil production next year in its Short-Term Energy Outlook report, and it expects this year's record production to be larger than previously anticipated. The EIA added that by 2026, global oil inventories will continue to rise due to production growth outpacing the growth in demand for oil fuels, which will put further pressure on oil prices.

Chevron CEO Mike Wirth stated in a media interview:

"OPEC+ countries have a large amount of oil supply returning to the market, and it looks like we are entering a period where supply exceeds demand absorption capacity."

Analysts: Risks and Outlook Coexist

Despite increasingly evident signs of oversupply, market sentiment remains in a "tug-of-war." Vandana Hari, founder of Singapore-based analysis firm Vanda Insights, stated that this is a "tug-of-war between Russian risk premium and ample supply." She expects the global market to be in a "slight surplus" this quarter and next.

Some analysts believe that the market's pessimistic reaction may be excessive. Suvro Sarkar, head of the energy department team at DBS Bank, believes that the recent weakness in oil prices seems to be driven by OPEC's revision of its 2026 supply-demand balance forecast, confirming the organization's acknowledgment of the possibility of oversupply. However, he argues that "this is merely a shift towards a more realistic interpretation of the market and does not change the fundamentals, so the market reaction seems overdone." He expects that, considering potential short-term disruptions in Russian exports after stricter sanctions take effect, Brent crude prices should have considerable support around $60 per barrel.

Meanwhile, geopolitical factors remain an important variable in the market. In recent weeks, the Trump administration has pressured Russia by sanctioning Russian oil companies and Lukoil, which has supported refined oil prices. Some analysts indicate that OPEC's oversupply signal has released previously suppressed bearish sentiment, while the increase in U.S. crude oil inventories has further exerted pressure.

Going forward, investors will closely monitor the IEA's upcoming monthly report and the official inventory data released by the EIA for more clues about the market's supply-demand balance. Additionally, reports indicate that Saudi Crown Prince Mohammed bin Salman will meet with U.S. President Trump at the White House next week, which will also be a focal point for the market