Oil prices fell by more than 2 per cent on Tuesday as the International Energy Agency warned of a huge supply glut in 2026, and as trade tensions persisted between the US and China, the world’s two biggest economies.
Brent crude futures fell $1.38, or 2.2 per cent, to $61.94 a barrel by 11:47 a.m. ET (15:47 GMT), while US West Texas Intermediate crude was down 2.1 per cent, or $1.24, at $58.27. Both contracts were at a five-month low.
In the previous session, Brent settled 0.9 per cent higher, and US WTI closed up 1 per cent.
“The latest tensions between the US and China will also be a pressure point on crude as China’s economy could be in question if tensions stay elevated,” said Dennis Kissler, senior vice president of trading at BOK Financial.
UBS analyst Giovanni Staunovo said a risk-off mood had taken hold as trade tensions weigh on sentiment and the IEA report was bearish.
US Treasury Secretary Scott Bessent said on Monday that President Donald Trump remained committed to meeting Chinese President Xi Jinping in South Korea this month, as both countries try to defuse tensions over tariff threats and export controls.
However, developments last week, such as Beijing’s expanded export controls on rare earths and Trump’s threats of 100 per cent tariffs and software export curbs from November 1, have weighed on sentiment.
Beijing also announced sanctions on Tuesday against five US-linked subsidiaries of South Korean shipbuilder Hanwha Ocean, while the US and China will begin charging additional port fees on ocean shipping firms.
Meanwhile, the IEA said the world oil market faces a surplus next year of as much as 4 million barrels per day as OPEC+ producers and rivals lift output and demand remains sluggish.
In its monthly report on Monday, the Organization of the Petroleum Exporting Countries, and allies including Russia, took a less bearish view than the IEA, saying the oil market’s supply shortfall would shrink in 2026, as the wider OPEC+ alliance proceeds with planned output increases.
The Brent oil futures six-month spread traded at its smallest premium since early May, while the WTI spread was at its narrowest since January 2024.
Narrowing backwardation, the market term for immediate deliveries fetching a premium over later deliveries, suggests investors are making less money from selling their oil in the spot market because near-term supply is perceived to be ample.
