Many investors have been puzzled by the oil and gas market recently. Despite ongoing conflicts in key producing regions and sticky inflation across the board, oil has defied the odds to decline an average of 10% this year and nearly 25% in the past 24 months. And while the threat of conflict remains strong in the Middle East, the war that has marred Europe for nearly four years now appears to be close to an end. With the mediation of Trump and maybe the EU, Ukraine and Russia will potentially sit down for the first time to discuss an end to the war and Russia's return to international trade.
As the winter heating season begins to warm up, Brent was sitting at a very reasonable $63.01 per barrel on 27 November, with WTI holding at an even more attractive $58.60. But what's behind this subdued activity at a time when the global geopolitical and economic situation would typically suggest expensive oil? As is usually the case, it comes largely down to a matter of supply and demand and, more specifically, a disbalance between the two. In this piece, we'll look at the main factors impacting both these key market metrics and how they might evolve into 2026.
Control the supply
There's no doubt that the global oil supply has been steadily rising over the last year and beyond. Since January 2025 alone, it has increased by a massive 6.2 million barrels per day (bpd) to reach 108.2 million bpd by October. Independent producers such as the US, Brazil and Guyana have been major contributors to this glut, with technological and cost efficiency advances helping to boost their shale and offshore projects despite lower oil prices. Meanwhile, the 22-member OPEC+ has been winding down its pandemic-era production cuts and has now ramped up output by 2.9 million bpd since April 2025, accounting for almost half of the total global production increase. Despite this, the US remains the world's biggest producer with a record 13.86 million bpd output this month, and Trump's "drill, baby, drill" philosophy would suggest that this trend is likely to last at least for the next two years. Consequently, OPEC+ has been forced to produce more than perhaps it would like in order to protect its market share and influence within the wider global oil market.
The result of this struggle for dominance has been a market awash with crude oil. The cartel has since agreed to pause its hikes for the first quarter of 2026 and will hold an online meeting on 30 November to discuss the development of a mechanism to determine the sustainable production capacity of each member country. While this is, indeed, a step in the right direction for controlling supply, the progress of peace talks between Ukraine and Russia could throw a spanner in the works. If terms are reached and Russia re-enters the global trade arena, the market will likely see a large influx of Urals crude. The sanctions and price caps hitherto applicable to Russian oil have acted as a key restrictor on deeper supply-side price drops, which could finally materialise in the event that Moscow seeks to take advantage of the opportunity for a quick cash injection to aid its reconstruction efforts.
Name your demands
Despite the post-pandemic industrial recovery, oil demand has been somewhat subdued, particularly in powerhouse economies like India and China. Once the largest consumer of global oil, China is now showing a mixed picture. Though October showed an 8.2% year-over-year increase in imports, underlying demand for fuels like gasoline, diesel and kerosene has plateaued amid rapid and widespread EV adoption, the rise of LNG-powered trucks and the continued construction-sector slump. As a result, much of the excess crude purchased has been stockpiled, with analysts now estimating China's strategic reserves to be in excess of 1.3 billion barrels. According to data from the IEA, this imbalance is likely to continue, and we could be looking at a surplus of nearly 4% of global demand in 2026, with a projected gain of 790,000 bpd this year and 770,000 bpd in 2026.
The IEA is more optimistic over the longer term, though, and no longer believes that oil demand will peak this decade. Its latest annual World Energy Outlook, released on 26 November, predicts that demand could continue to rise steadily until 2050, albeit at a rate that is modest by historical standards. OPEC, for its part, noted in a recent monthly global oil demand report that it expects demand to match supply in 2026, though this marks a walk-back from its previous prediction of a mild demand deficit. The fact remains that demand is flat in advanced economies, and emerging markets are unpredictable. Global supply is expected to increase by 3.1 million bpd in 2025 and 2.5 million bpd in 2026, and yet demand growth, as we've already noted, remains below 1 million bpd annually. If stockpiles continue to rise at the same pace and nothing comes to snap up the projected supply-side increases, it's hard to see a scenario where oil can gain. Yet, remilitarisation in Europe and touted NATO spending boosts could just be the push oil needs to stabilise.
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