Global Oil Markets Under Pressure Amid Oversupply and Geopolitical Uncertainty

Oil prices sank on Monday as mounting fears of oversupply combined with renewed U.S.–China trade tensions weighed heavily on the market. Both benchmark grades fell by about 0.4 % - with Brent crude slipping to $61.05 a barrel and U.S. West Texas Intermediate dropping to $57.33 - dropping further below their already weak levels from the previous week.

So what’s driving this renewed drop in crude, and where does it leave the market heading into 2026?

Why Are Oil Markets Losing Momentum?

The core of the pressure lies in a growing concern that global supply is now outpacing demand in a meaningful way. The International Energy Agency (IEA) recently raised its forecast for global oil supply in 2026, projecting growth of about 2.4 million barrels per day, while demand is expected to advance by only around 0.7 million barrels per day.

That imbalance means the market could face a surplus of roughly 3-4 million barrels per day in 2026, a figure that has spooked many traders and added a heavy overhang to prices. Meanwhile, production from major oil-producing countries has been rising, and U.S. stockpiles remain elevated, adding to the sense that, for now, supply remains firmly in control.

At the same time, global trade tensions are adding to the negative tone. The renewed friction between the U.S. and China about tariffs and broader growth expectations might reduce demand just as supply is increasing.

Could Geopolitical Twists Make a Difference?

The oil market’s biggest worry still centres on excess supply, but global politics is starting to complicate things. An expected meeting between U.S. President Donald Trump and Russian President Vladimir Putin has stirred talk that Russia might alter its oil export plans — a move that could upset the already fragile balance in global supply.

Another factor concerns Russian crude. With the U.S. stepping up pressure on nations buying Russian oil, key Asian importers such as India and China may adjust their procurement patterns. Some analysts view this as potentially increasing supply to China, further loosening the global market.

On the production front, U.S. energy firms added rigs for the first time in several weeks, signalling that even in a weak price environment, supply momentum remains. This is another reminder that structural forces are acting independently of short-term price dips.

What’s the Outlook for the Rest of the Year and Beyond?

Although prices might bounce, many analysts believe the near term remains challenging for the oil patch. For example, the Bank of America warned that if U.S.–China trade tensions escalate while production from OPEC+ remains elevated, Brent crude could slide below $50 a barrel. It maintained a Q4 2025 target around $61 and a first half 2026 target near $64, but the risk of a deeper fall is being taken seriously.

In addition, the market’s focus is shifting to whether demand growth can re-accelerate or whether oil consumption will remain muted amid macro pressures and structural shifts in energy usage. With electrification and efficiency gains gradually reducing oil’s dominance, the traditional demand engine appears less reliable going forward.

There are still some potential upside triggers. A credible trade deal between the U.S. and China would lift sentiment and could help alleviate demand fears. Supply disruptions in major producing countries could flip the narrative briefly. But for now, the broad canvas suggests a longer period of price pressure rather than a quick rebound.

Where Does This Leave Buyers and Producers?

Producers are facing headwinds with softer prices and tighter margins. If the surplus conditions continue, OPEC+ will be forced to reconsider their output plans. While consumers in import-heavy countries may enjoy lower input costs, refiners and oil-service companies will have it tough.

So, with oil at around $60 a barrel and potential supply-demand imbalances in the offing, will structural oversupply continue to keep crude in its box well into 2026, or is a big rebound still in the works? The time will tell.

Sources:

Economic Times
Reuters
Financial Times
Reuters