Crude oil prices headed for $50 amid supply glut in 2026, says analyst

Benchmark crude oil prices have seen a sharp selloff over the past fortnight, driven by supply glut fea₹and geopolitical tensions, with WTI dropping 10 per cent in a month and 20 per cent year-to-date (Y-T-D), fluctuating within a $58–$65 range over the last three months. 

 

Brief spikes from Middle East risks have been overshadowed by surplus concerns. The US-China trade war escalated in October 2025, moving from a fragile truce to a high-stakes standoff over tariffs, technology, and critical minerals. China's October 10 announcement of export controls on 12 of 17 rare earth metals, effective December 1, prompted President Trump to impose a 100 per cent tariff on Chinese imports from November 1, alongside software export curbs. This escalation is likely to drag oil prices down in the near term amid weakened global demand and heightened uncertainty.

 

Supply glut and production hikes

Opec+ is unwinding cuts, restoring 2.72 million barrels per day by November, with Iraq adding 500 thousand barrels per day via Kurdish pipelines, worsening a 0.5 million barrels per day surplus. IEA projects a 3.33 million barrels per day surplus in 2026, up 360 thousand barrels per day, driven by US output at 13.63 million barrels per day. Oversupply has pressured prices downward despite brief support. Q4 2025 may see a 2 million barrels per day surplus as Opec+ raises quotas by 137 thousand barrels per day monthly, unwinding 1.65 million barrels per day of voluntary cuts by September 2026. This bearish outlook challenges oil prices amid global demand weakness. 

Weak demand

Asian giants China and India show slower demand growth than expected, with China's EV shift limiting oil growth to 1.5 per cent (16.9million barrels per day). The US faces a 2026 slowdown, with unemployment at 4.5 per cent by end-2025 and gross domestic product (GDP) dropping to 1.5 per cent from 3 per cent in Q2. Europe's tariffs and weak purchasing managers index (PMI) dampen sentiment, though Asia's 60 per cent demand share offers some support. Global demand growth remains muted at 740 thousand barrels per day in 2025.

Early signs of economic slowdown

Two US regional banks, Zions Bancorp and Western Alliance, reported bad loans in their quarterly results on October 16, 2025, wiping out $100 billion in market cap from the banking sector overnight. Zions announced a $142 million charge-off due to fraud in its commercial loan portfolio, triggering a 6.3 per cent drop in the Regional Banking Index, its worst since April, while the Nasdaq Bank Index fell 3.6 per cent and S&P Regional Banks Index declined 4.1 per cent. This may be an early sign of US economic slowdown, with the New York Fed’s recession probability at 27.4 per cent for September 2026.

China Q3, GDP preview

China is set to release its Q3 2025 GDP data, expected to reveal broader economic weakness with subdued production, investment, and consumption. Property sector concerns deepened, with resale home values dropping 0.58 per cent in August from July, accelerating from a 0.55 per cent decline the prior month. GDP is projected to grow at 4.5 per cent year-over-year, down from 5.2 per cent in Q2. 

 

Retail sales are anticipated to rise 3 per cent y-o-y in September, easing from 3.4 per cent in August. Fixed asset investment is expected to stagnate for January–September (vs. 0.5 per cent y-o-y for January–August), with a -3 per cent y-o-y drop in September (from -7.1 per cent in August). Weakness spans infrastructure, manufacturing, and real estate. 

US weekly crude inventories

The EIA report for the week ending October 10, 2025, revealed US crude oil inventories at 3.4 per cent below the seasonal 5-year average, gasoline stocks up 0.1 per cent above average, and distillate inventories down 6.9 per cent below average. Crude oil production hit a record 13.636 million bpd, rising 0.1 per cent week-on-week, reflecting robust output.

Outlook

Overall, we continue to maintain our bearish views on crude oil and expect WTI prices to average around $56 by end of 2025 and expect it toward $52-50/b in 2026 as supply pressures dominate, with geopolitics providing intermittent support. We expect range bound trade in WTI $56–$62/b, limited upside without escalation. At MCX prices could test support of ₹4,800.  (Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.)