Global Oil Markets Brace for Record Surplus Amid Geopolitical Volatility

Oil markets took a sharp hit this week with February WTI crude falling -1.06% while RBOB gasoline dropped -1.48%, both touching 2-week lows. The primary culprit: expectations of an unprecedented global oil surplus. Both the International Energy Agency and US government are now forecasting that supply will outpace demand significantly in 2026, marking a critical shift from the production constraints we’ve seen in recent years.

The Surplus Narrative Takes Center Stage

The IEA’s latest projections paint a stark picture. Global crude surplus is set to balloon to a record 3.815 million barrels per day (bpd) in 2026, up dramatically from an already elevated 2.0+ million bpd in 2025—the highest in four years. This surplus reversal reflects changing market dynamics: US production is outperforming expectations while OPEC members gradually restart idled capacity. The EIA has even bumped its 2025 US crude production estimate to 13.59 million bpd, signaling confidence in domestic output.

Storage data underscores the pressure. Vortexa reported that crude parked on stationary tankers jumped 15% week-over-week to 129.33 million barrels by late December. For traders, this growing “floating storage” is a classic bearish signal—excess supply seeking warehouse space on water.

Geopolitical Headwinds Provide Limited Support

Despite bearish surplus forecasts, crude prices haven’t collapsed entirely. Several risk factors are cushioning the decline. Ukraine’s intensifying attacks on Russian refineries and tankers—at least 28 refineries targeted over four months—have degraded Moscow’s export capacity. Fresh US and EU sanctions on Russian oil infrastructure are compounding the pressure on global supplies.

Venezuela also remains a supply wildcard. The US blockade of sanctioned oil tankers, including the recent forced diversion of the Bella 1, keeps Venezuelan barrels offline. In Nigeria, US military strikes against ISIS have created headline risk, even as the country remains an OPEC member. These geopolitical pinch points prevent oil from crashing despite the looming surplus.

China’s Rebound Offers Counter-Weight

Demand-side support has materialized in an unexpected place: China. December crude imports are poised to jump 10% month-over-month to a record 12.2 million bpd as Beijing rebuilds strategic reserves. This aggressive restocking is providing a crucial offsetting force to the surplus narrative.

OPEC+ Strategy Under Pressure

The organization faces a defining moment. OPEC+ reaffirmed on November 30 that it will pause production increases through Q1 2026, attempting to stabilize prices as surplus conditions worsen. The group previously committed to raising output by 137,000 bpd in December before halting further hikes. However, with 1.2 million bpd of previously promised cuts still needing restoration, OPEC+ finds itself trapped between market realities and member pressures.

US oil rig counts add another layer. Active rigs rose to 412 in early January after hitting a 4.25-year low of 406 in mid-December—a modest recovery from the December 2022 peak of 627 rigs, but still constrained by softer commodity prices.

The bottom line: oil markets are navigating a precarious balance. Record surplus conditions are pushing prices lower, but geopolitical friction and Chinese demand spikes are preventing free fall. Watch OPEC+ closely and monitor whether this surplus projection materializes or shifts with the next wave of sanctions and supply disruptions.