Oversupply expected to hit oil market next year amid Opec+ boost, say traders

Volatility low but can 'flame up' because of an unexpected event

Oil storage tanks near Moscow. Sanctions on Russian oil have prevented a glut from forming in global markets, traders say. Bloomberg

There will probably be an oversupply of oil in the market next year amid an increase in production from Opec+ and lower demand, traders have said.

“We anticipate potential oversupply next year of up to 2 million barrels per day, which is quite substantial,” Marco Dunand, chief executive and co-founder of Mercuria, a Swiss-based commodity trading company, said at the Adipec conference in Abu Dhabi on Wednesday.

“Glut is forming slowly and probably is going to hit the market in the next few months.”

The comments come after Opec+ last week agreed to increase production by 137,000 barrels per day for December amid healthy market fundamentals.

The supergroup of oil producers, however, paused a production increase for the first quarter of next year due to seasonality.

The International Energy Agency (IEA) last month also raised its global oil supply projections for this year and next amid Opec+ production increase.

Lukoil stand at Adipec. Bloomberg

The Paris-based agency expects world oil supply to rise by 3 million bpd to 106.1 million this year and 2.4 million next year, its monthly oil market report said in October.

Oil markets have remained volatile this year due to geopolitical tension, US President Donald Trump's tariffs and Russian sanctions on oil by the US. The US Federal Reserve decision to lower interest rates also affected oil markets.

Sanctions on Russian oil by the US and the EU is preventing a glut forming in global markets, Torbjorn Tornqvist, chief executive of commodities trader Gunvor Group, said at Adipec on Wednesday.

“Through the sanctions that we've had around the world, an enormous amount of oil is stuck and dislocated,” Mr Tornqvist said. “This is unprecedented, the size of that. Therefore, obviously, if all sanctions would disappear, this market would clearly be quite oversupplied.”

Last month, the US announced sweeping sanctions on two Russian oil companies including Lukoil and Rosneft, with prices climbing as much as 5 per cent after the decision.

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The market has become “much more stable”, and “volatility is very low”, following disruptions in the past one year amid geopolitical tension and economic uncertainties, Mr Tornqvist said.

“Volatility is very low as we speak and can flame up because of an unexpected event. Good example is US sanctions on two major oil producers that came out of blue, and prices reacted to that,” he said, adding that the demand for oil will continue to remain strong as consumption increases.

“We are not going to see any reduction in consumption in the next decade. We are going to need oil to more or less what we need today, 10 years from now. Oil and gas [sector] is still going to grow,” he said.

The world will require more oil amid data centres boom, Suhail Al Mazrouei, Minister of Energy and Infrastructure, said this week. “The world would require more resources, more oil, more gas and definitely more renewable energy. With AI and data centres, we need more oil.”