Global oil market swings to surplus as Gulf shipments rebound

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Global oil market surplus

Highlights

Global oil supplies exceeded consumption by nearly 2 million barrels per day in October, with IEA projecting surplus to continue through next year.
Observed oil inventories increased by 1.7 million b/d in October, reversing a 1.9 million b/d decline over the prior three months.
Dated Brent trades around $95 a barrel, down from $136 in early October, but refined product prices remain elevated due to ongoing refining constraints.

Supply rebound reshapes fourth-quarter oil balance

As reported by Financial Times, citing the International Energy Agency, oil supplies outstrip consumption by almost 2 million barrels a day in October, after the agency revised September from a slim deficit to a 600,000 b/d surplus.

The turnaround is driven by a surge in Gulf shipments despite an uptick in Iranian attacks on shipping. Producers in other regions also pump more oil, while consuming countries use less.

IEA analysts say in a report published on Friday that the oil market is showing tentative signs of rebalancing. They add that markets are expected to remain in surplus in the fourth quarter of this year and throughout next year.

Observed oil inventories rise by an average of 1.7 million b/d in October, the first increase since June, after falling by 1.9 million b/d over the previous three months.

Inventory recovery and refining strains persist

Analysts caution that the return to surplus does not mean consumers are no longer affected by what the IEA has previously called the largest supply disruption in history. The improvement is also partly driven by weaker demand, with the IEA forecasting consumption will fall by 2.7 million b/d in 2026 before rebounding by 2 million b/d next year.

Most of the additional oil reaching global markets is crude, which helps supply refineries with feedstock but does not immediately relieve shortages of refined products because refining capacity remains constrained. Dated Brent, the physical oil benchmark, is priced around $95 a barrel after trading at $136 a barrel in early October, while products such as jet fuel and diesel remain elevated.

Spencer Dale, a professor at the London School of Economics, says weaker crude prices do not necessarily ease pressure on households and businesses if refining shortages continue. He also says many months of surplus will be needed to replenish global oil inventories, particularly refined product stocks that have been drawn down more sharply than crude.

As highlighted earlier, our coverage of the AI stock sell-off examined how $110 oil added to inflation and Fed-policy worries.

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