Investors and analysts have spent much of the year taking the view that the oil market, which has been in oversupply mode, is headed straight for a glut through 2026, and that glut could reach as much as 4 million barrels per day (b/d) and further depress global prices along the way.
That scenario still persists, according to industry experts. But a surprise announcement last Wednesday about sanctions imposed by the US Treasury against Russia’s two largest oil producers changed the calculations.
The bottom line: The oil glut (currently hovering around 1.9 million barrels per day) will almost certainly continue through 2026. But thanks to geopolitical curveballs, it may not become as large as previously expected.
For the oil sector, a lighter glut could mean price support in an industry that is already suffering. For consumers, it could mean slightly higher-than-expected gasoline prices at the pump, since crude oil accounts for about half the cost.
Brent crude futures (BZ=F), the global benchmark, are down more than 13% since the beginning of the year, hovering around $64. The US benchmark, West Texas Intermediate (CL=F), ​​has followed suit and is down more than 14% to trade around $60.
But the two benchmarks have spent the last six months trading relatively stable.
On the one hand, demand has remained relatively strong throughout the year. China has been building reserves beyond its domestic needs, which has “absorbed much of the surplus” that might otherwise have depressed prices, said Jim Burkhard, vice president of oil markets, energy and mobility at S&P Global.
Outside China, Middle East demand for the year remained firmer than expected, with India increasing its purchases as Russian crude became cheaper, said Nitin Kumar, senior oil and gas analyst at Mizuho.
At the same time, the OPEC+ cartel, a group of major oil-exporting countries, has raised its production targets every month for six consecutive months, most recently agreeing in early October to increase output by another 137,000 b/d. There are now about 1.4 billion barrels worldwide stored in tankers at sea after a record 10 weeks, and China can only hold so much oil even as the country looks to build more storage capacity.
“In a sense, the fundamentals are healthy,” Burkhard said. “But there is a wave of oil coming onto the market now… that will need to find a home.”
The International Energy Agency’s most recent projection predicts that oversupply could reach an “unsustainable” four billion b/d in 2026, doubling the average surplus level of 1.9 million b/d between January and September.
“The global oil market may be at a turning point” for crude prices as the surplus increasingly exceeds demand, said Toril Bosoni, head of the IEA’s oil industry and markets division. Bosoni said either producers like OPEC+ will have to reduce their production, or other countries will need to start filling their stores at a faster pace so that market supply and demand can rebalance to a healthier level.
Destroyer of excess? An oil platform in eastern Siberia. (AP Photo/Sergey Ponomarev, File) ·ASSOCIATED PRESS
The notion of a large oversupply remained relatively unchallenged until October 22, when the Treasury Department announced its wave of sanctions against Rosneft and Lukoil. Brent and WTI futures rose more than 5%, posting their biggest weekly gains since June.
Together, Rosneft and Lukoil export about 3 million b/d of crude oil, according to Goldman Sachs. The exact amount of that supply that will leave the market is an important factor in influencing global prices.
Right now, Goldman Sachs analysts predict that around 500,000 to 600,000 b/d of oil are at risk of being taken off the market in 2026. If that’s true, the analysts wrote, they predict prices will fall about 15% to $56 and $52 per barrel for Brent and WTI crude, respectively, further hitting an industry already operating on painful margins.
But if sanctions were applied much more severely and reduced Russian supply by 1.5 million b/d, global supply would fall sharply and the incoming glut would be much more limited, pushing prices above $84 and $70 before settling at $73 and $63, respectively.
The lynchpin, Burkhard said, is the threat to buyers of Russian barrels. Under Treasury sanctions, those companies could face anything from a fine to being cut off from the U.S. financial system. Major Indian buyers of Russian oil have already said they plan to “reduce their crude imports in the near term due to sanctions,” Rystad analysts wrote.
In other words, it’s not that Russia doesn’t want to export its oil but that no one will want to risk buying it.
When President Trump imposed strict sanctions on Iranian oil in 2018 during his first term, Brent prices jumped to around $86 per barrel. But just before those measures went into effect, Trump granted waivers to most major buyers and prices fell to around $50 within two months.
Meanwhile, the supply glut in 2025 has also not been as bad so far as anticipated, Mizuho oil analyst Kumar told Yahoo Finance. Kumar said that tells him that next year’s glut probably won’t be as bad as the market has been thinking, either.
“There is underlying strength in demand,” Kumar said. “A long-awaited build in global crude oil inventories is finally appearing, but oversupply conditions could be short-lived.”
The oil industry will hope that prices remain stable through some magical combination of market factors, even though that is unlikely. The breakeven price at which U.S. oil and gas companies can profit from drilling stands at $63 a barrel, according to respondents to a recent survey by the Kansas City Federal Reserve.
The point at which prices are strong enough to encourage an increase in drilling is even higher, respondents said, at $78 a barrel, a mark WTI hasn’t seen since January.
At the end of the day, market fundamentals look solid, said S&P Global’s Burkhard. The magnitude of the excess supply will depend largely on the specter of US Treasury sanctions and the risk that the world’s producing nations see in the excess supply.
“It’s fear and fundamentals,” said S&P Global’s Burkhard. “Which one is going to win now?”
Fear and fundamentals: A tanker truck unloads imported crude oil at the Qingdao Port crude oil terminal in Qingdao, Shandong province, China, on August 10, 2025. (Photo by Costfoto/NurPhoto via Getty Images) ·NurPhoto via Getty Images
Jake Conley is a breaking news reporter covering US stocks for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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