There Are Signs the Supply Glut Is Now Hitting the Market

There are signs that the long-anticipated supply glut is now hitting the market, with the six-month and 12-month term spreads flipping into contango.

That’s what analysts at BMI said in a BMI report sent to Rigzone by the Fitch Group on Friday, adding that, “sentiment is souring, with the ratio of long to short positions held by managed money in Brent crude falling to 1.8 as of mid-October, its lowest level since April, in the wake of the reciprocal tariff announcements”.

“Absent major export disruptions in Russia, prices will remain under pressure over Q4 2025 and into early 2026, amid looser supply-demand fundamentals,” the analysts added.

“However, a pause in the OPEC+ supply hikes – and scope for limited market intervention in response to extreme price weakness – should help to put a floor under Brent,” they continued.

The BMI analysts noted in the report that, from the second half of 2026, they “expect stronger demand growth, slower supply growth, and healthier market sentiment will foster a recovery in prices”.

“That said, this hinges on several key assumptions, including near-term restraint by OPEC+, a meaningful slowdown in the U.S. shale patch, robust import demand in Mainland China, and an improved global macroeconomic backdrop heading into 2027,” the analysts said.

The BMI analysts stated in the report that oil prices have come under pressure this month, pointing out that Brent fell to a five-month low of $61 per barrel on October 20, “before partially rebounding to above $64 per barrel at the time of writing on October 23”.

“The recent jump was triggered by the announcement that U.S. President Donald Trump was imposing Ukraine-related sanctions on Russia, including sanctions on Lukoil and Rosneft, two major exporters of Russian oil,” the analysts added.

In the report, the BMI analysts highlighted that their three to six month outlook for oil was “neutral” and that their 12 to 24 month outlook was “neutral-bullish”. The report pointed out that BMI expects the front month Brent crude price to average $68 per barrel this year and $67 per barrel in 2026.

In a report sent to Rigzone by the Skandinaviska Enskilda Banken AB (SEB) team on Friday, SEB Chief Commodities Analyst Bjarne Schieldrop pointed out that Brent jumped to an intraday high of $66.36 per barrel yesterday after having touched an intraday low of $60.07 per barrel on Monday.

Schieldrop noted in that report that Brent was “falling back 0.4 percent this morning to $65.8 per barrel”.

In a market analysis sent to Rigzone today, Michael Brown, Senior Research Strategist at Pepperstone, noted that crude benchmarks “were the big mover yesterday, with both Brent and WTI barreling higher, adding a slick five percent apiece; the catalyst here being the U.S. announcement of sanctions on Russia’s largest oil refiners”.

“While I’m always tempted to fade any geopolitically induced market moves, it increasingly looks as if crude has put in a bottom, especially with the U.S. sitting on the bid as the SPR [Strategic Petroleum Reserve] is refilled,” he added.

In a statement posted on its website on October 21, the U.S. Department of Energy (DOE) announced a new solicitation to purchase one million barrels of crude oil for delivery to the SPR at the Bryan Mound site.

The statement said the solicitation is in accordance with the Working Families Tax Cut which President Trump signed into law earlier this year. The legislation appropriated $171 million to begin refilling the SPR, the statement highlighted.

“Thanks to the President and Congress, we are able to begin the process of refilling the SPR,” Energy Secretary Chris Wright said in the statement.

“While this process won’t be complete overnight, these actions are an important step in strengthening our energy security,” he added.

To contact the author, email andreas.exarheas@rigzone.com