Crude futures are signaling a shift towards contango as market participants brace for an oversupply wave in 2026, driven by aggressive production from OPEC+ and non-OPEC players and uncertain demand growth.
U. S. oil futures are showing the narrowest backwardation since early 2024, with the November 2025 WTI contract trading at a slim premium over May 2026—a structure ill-suited to limits on physical demand. This flattening of the curve underscores mounting concerns of an oil glut.
OPEC’s latest monthly assessment projects that global oil supply and demand will closely balance in 2026, after the cartel boosted output by 630,000 barrels per day in September. That move trimmed a forecasted supply deficit to just 50,000 bpd—a sharp correction from last month’s 700,000 bpd deficit estimate.
Yet this “balance” claim stands in contrast to projections from the International Energy Agency and U. S. Energy Information Administration, which foresee inventory builds averaging 2.6 million barrels per day in Q4 2025 and persisting through 2026. These surplus forecasts place downward pressure on benchmark prices.
ExxonMobil’s CEO warned that oversupply may persist short-term, but demand growth in emerging economies could tighten the market later. Meanwhile, Saudi Aramco’s CEO affirmed the firm’s capacity to maintain up to 12 million bpd of production sustainably, reinforcing the kingdom’s influence in the supply landscape.
Speculators are subtly repositioning; the narrowing backwardation suggests reduced incentive for prompt deliveries, and if spot prices slip below forward ones, contango could take hold.
China’s role is critical. While the EIA and other forecasters factored in Beijing’s strategic draws on crude inventories as a support to prices, uncertainty looms if that pace contracts.
Some analysts foresee severe market stress. Macquarie researchers describe prospective 2026 surpluses as “cartoonish,” warning that high interest rates will render crude storage costlier and magnify financial pressures.
Goldman Sachs expects Brent crude to fall from an average of about $63 in 2025 to roughly $58 in 2026, citing weak global demand, trade tensions, and swelling inventories. Barclays has slashed its forecasts too, anticipating 2026 oversupply as production outpaces consumption.
Oil prices responded to moderating U. S.–China tensions, with Brent rising to $63.54 per barrel and WTI to $59.71. But upside remains limited amid bearish structural signals.
A complicating factor is the divergence between futures markets and physical flows, particularly for certain European grades. That disconnect reflects frictions in shipping, quality spreads and logistics constraints.
Refining capacity constraints may temper inventory accumulation to some degree, but most forecasts demand that spare storage and floating options absorb much of the surplus.
The oil sector now navigates a narrow corridor: sustain investment under price pressure, manage storage economics, and anticipate demand surprises. The evolving curve structure suggests that the next test will be structural — not temporary — and may reset conventional market expectations.