Price of Oil: Why the ‘Inevitable Glut’ Narrative May Be Wrong

For 2026, the comforting myth of an “inevitable oil glut” persists. The reasoning? Increased crude oil production, continued Iranian exports despite sanctions, and expectations of OPEC+ output hikes. However, a closer look at the physical market reveals a different story. The market isn’t behaving as a surplus would dictate.

The Physical Market Doesn’t Support a Glut

Unlike predictions, there are few signs of overflowing tanks or exploding floating storage. OPEC+ shows no inclination to recklessly increase output, and tanker freight rates suggest supply security, not oversupply, is the dominant concern. The glut, it seems, exists primarily in spreadsheets.

A true crude oil glut has a clear signature: relentlessly rising OECD inventories, a collapsing forward curve (deep contango), and producers slashing official selling prices. We also see tankers idling due to a lack of demand. These signals were evident in 2015-16 and 2020, but are absent today.

Forecasts vs. Reality

Despite this, institutional forecasts continue to project supply exceeding demand in 2026. The International Energy Agency (IEA) anticipates a global oil demand increase of 850,000 barrels per day (bpd), while projecting a supply increase of 2.4 million bpd, reaching 108.6 million bpd. The US Energy Information Administration (EIA) expects global inventory builds to average over 3 million bpd this year.

However, real-world figures paint a more ambiguous picture. U.S. weekly inventory data are volatile, with significant builds and draws occurring within the same period. This inconsistency doesn’t align with a market saturated with supply. Instead, it reflects the interplay of refinery runs, import timing, and logistical constraints.

Inventory Levels and Expert Insights

OECD stocks haven’t surged as expected in a glut scenario. Goldman Sachs recently increased its late-2026 price forecasts, citing lower-than-expected OECD inventories. A realistic assessment suggests that a surplus failing to materialize in storage isn’t a surplus at all – it’s a forecast awaiting validation.

Floating Storage and Tanker Rates

In past gluts, crude oil tankers served as de facto storage tanks, anchored offshore. Currently, global oil-on-water is around 900 million barrels, down from recent peaks and not spiraling upwards. This doesn’t reflect a market choking on unwanted barrels.

Saudi Arabia, Iran, and other Gulf exporters’ recent moves aren’t indicative of a glut, but rather a mitigation of risks associated with potential U.S. military action against Iran.

OPEC+ Strategy and Freight Market Signals

OPEC+ isn’t acting like a group anticipating an inevitable glut. Instead of defending market share, they’re proceeding with incremental output adjustments, considering a modest 137,000 bpd increase for April. Saudi Arabia’s boosted exports in February were a contingency measure, front-loading shipments to reduce disruption risk.

Tanker freight rates reinforce this interpretation. VLCC time charter equivalent earnings on Middle East–Asia routes have surged above $200,000 per day, and the Baltic Exchange’s dirty tanker index has climbed sharply. These increases are linked to intensified Iran risks, potentially pushing rates to decade highs. Such spikes aren’t characteristic of a complacent surplus, but rather precautionary bookings and higher war-risk premia.

Geopolitical Risks and Investment Levels

The Iran variable is pivotal. Approximately one-third of OPEC+’s output is constrained by sanctions, military threats, or political volatility. Prices reflect the system’s limited tolerance for shocks. Escalation around the Strait of Hormuz would sharply reduce effective tanker capacity and drive freight rates even higher.

Global upstream oil and gas investment is projected to be just below $570 billion in 2026, another decline. Around 40% of this investment offsets natural decline in existing fields. These figures don’t suggest exuberant overbuilding. Without sustained new project sanctioning, supply growth assumptions may be unrealistic.

Demand Resilience and the ‘Cushion’ Effect

Global oil demand remains resilient, expanding outside OECD regions, driven by petrochemicals and aviation. The bull case doesn’t require booming consumption, only demand that’s “good enough” in a constrained market.

The Bottom Line

The narrative of an inevitable glut remains difficult to reconcile with the evidence. Floating storage isn’t exploding, inventories aren’t ballooning, OPEC+ isn’t panicking, and freight isn’t collapsing. Geopolitical risks persist, and upstream investment remains low. These factors describe a market that could tighten rapidly if conditions shift. The real danger isn’t underestimating a surplus, but underestimating fragility.

By Cyril Widdershoven for Oilprice.com