As high oil prices curb demand, fresh signs of glut appear
The global oil market is showing signs of a return to excess supply as demand drops due to high prices, analysts and traders said, despite the lack of a resolution to the Iran war, which has disrupted exports from the Middle East since March.
The market was widely expected at the start of 2026 to be in a surplus, but the outbreak of the Iran war in late February led to what the International Energy Agency called the world’s biggest ever supply disruption and cut Middle East exports, overturning the surplus projections.
Banks and government forecasters have cut global oil demand forecasts in 2026 in part due to high prices. As supplies recover, weak demand is helping the market to balance.
Market back in surplus, says JP Morgan
Recovering Middle Eastern oil flows, rising production from other countries and weak demand have pushed global supply above consumption once again, JP Morgan said in a report.
“We estimate the global oil market returned to a surplus of 1.1 million barrels per day in September, widening to 1.4 million bpd in October, nearly matching last year’s average of 1.3 million bpd,” the bank said.
Global crude oil imports in October rose above average 2025 levels, the bank said, while demand lags.
Oil stocks did fall in last two months, Goldman says
The Iran war prompted the IEA to arrange a record release of oil from industrialised nations’ strategic reserves, and has drawn down commercial inventories.
However, Goldman Sachs estimates that global stocks did not decline in September to October after falling significantly in the months following the start of the Iran war.
Goldman sees the market as broadly balanced in the September-October period, compared to a deficit in March this year.
A marginal surplus from last year, an uptick in production outside the Gulf, along with a decline in demand helped balance the market, the bank said.
Gulf crude flows return closer to normal, products lag
Both banks also pointed to an uptick of oil flows from the Middle East since the early months of the war.
Oil shipments from the region edged lower in October from September’s levels, which were the highest since the Iran war started. Two ship-tracking firms said the October figures could be revised upwards as more details on shipments emerge.
Crude and condensate exports from the Gulf averaged 14 million bpd in October, or about 86% of pre-war levels, while refined product exports averaged 3.1 million bpd, or just over half of normal volumes, ship-tracking firm Vortexa said.
Mixed signals from short-term Brent swaps and Brent futures
In a sign of a short-term surplus of supply in the physical market, the price curve of Brent swaps, called contracts for differences, has moved.
The contract for delivery this week is trading below that for the following week and at the steepest discount since July, according to LSEG data. The prices of the second- and third-week contracts are also trading at a discount to the next week.
This market structure is called contango and generally reflects a perception that supply for immediate delivery is ample.
By contrast, Brent crude futures starting from January 2027 delivery remain in the opposite structure to contango, known as backwardation, where prompt prices are higher than later contracts. This indicates that supply remains tight in the near term.
Brent futures could also move into a contango structure if the swaps remain there, said Adi Imsirovic, a veteran oil trader and market expert, as such changes in the market structure usually start in the physical market.