An oil supply glut could sink prices to $35 a barrel next year. Why the U.S.-China trade truce won't change that.

By Myra P. Saefong

World Bank and IEA forecast a record-high oil supply surplus of 4 million barrels per day for 2026

Global oil markets could face a supply surplus of roughly 4 million barrels per day in 2026, according to the World Bank Group and International Energy Agency.

President Donald Trump's announcement of a U.S.-China trade truce may have overshadowed a new report that has helped raise the alarm about a potential record-high global surplus of crude oil next year.

Trump and Chinese President Xi Jinping reached a trade deal Thursday that includes an agreement to reduce U.S. tariffs on China. The agreement, however, won't be enough to save the market from the largest annual excess supply of oil on record.

Friendlier relations between the world's two biggest oil consumers also won't improve conditions in a market where prices may be headed to their lowest since the COVID crisis.

The agreement does "not change the current physical market math that still points to a sizable, price-negative oil surplus in 2026," Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

Annual excess global supply in 2026 may average 4 million barrels per day (bpd), the World Bank Group said Wednesday in its Commodity Markets Outlook report, citing data from the International Energy Agency.

The World Bank Group expects annual excess oil market supply in the market to average roughly 4 million barrels per day in 2026.

U.S. benchmark West Texas oil prices "could fall as low as the mid-$30s within a year if the sizable physical market surplus expected in 2026 becomes reality," said Richey.

U.S. oil prices 'could fall as low as the mid-$30s within a year if the sizable physical market surplus expected in 2026 becomes reality.'Tyler Richey, Sevens Report Research

He based that prediction on year-to-date price action in the oil futures market, and used the Organization of the Petroleum Exporting Countries' major fight for global market share in the mid-2010s as a guide.

See archived story: In OPEC's new order, market share trumps supporting oil prices

WTI oil prices (CL.1) haven't settled at $35 or below since May 28, 2020, according to Dow Jones Market Data. Prices on April 20, 2020 had marked their first-ever negative price settlement, pressured by a drop in demand and a growing glut of crude.

Trade deal impact

On Thursday, after news of the U.S.-China deal, domestic and global benchmark oil prices saw little support, edging up by a few cents per barrel for the session.

While the Trump-Xi meeting was seen as "incrementally positive for the current macroeconomic backdrop, it did not materially alter supply or demand expectations for 2026 - leaving estimates for a sizable physical market surplus intact," said Richey.

For a sustainable oil-market rally to emerge, "we would either need to see a supply-side shock which could potentially come from a flare-up in geopolitical tensions, or a sudden surge in economic growth that lifted the outlook for consumer demand in the U.S. and globally," said Richey.

Otherwise, "the well-broadcasted production and supply estimates for the year ahead, paired with steady, if not fading, demand estimates leave the fundamental scales tipped in favor of the oil bears," he said.

Total oil demand in China is likely to only to mark a "narrow" rise of 70,000 barres per day, or 0.4% this year as a whole, according to the IEA.

"If China were to pair a trade resolution with meaningful [economic] stimulus measures, that combination could start to have a more pronounced impact on the outlook" for oil, said Rebecca Babin, senior energy trader and managing director at CIBC Private Wealth.

The tariff resolution may help alleviate some demand concerns and could provide a modest uplift to global oil consumption, she told MarketWatch, but for now, that's "not enough to move the needle on balances given the expected surplus."

U.S. oil output hits '80s levels

The size of the potential oil-supply surplus next year is interesting given the context of the World Bank's expected 2026 price target of $60 a barrel for Brent crude, Richey told MarketWatch.

A rising surplus would be driven by a significant rise in global oil supply levels in the midst of maybe steady, if not declining, demand estimates - which would "theoretically pressure the price of crude oil considerably in the months and quarters ahead," he said.

On Thursday, West Texas Intermediate crude for December delivery (CLZ25) settled at $60.57 a barrel on the New York Mercantile Exchange, with prices losing 15.6% year to date. December Brent (BRNZ25), the global benchmark, ended at $65 on ICE Futures Europe, down 12.9% for the year so far.

An October oil report from IEA released earlier this month said that the global oil market has been in a 1.9 million barrel-per-day surplus since the start of the year, against a backdrop of slower demand growth and a "rapid" increase in crude-oil supplies.

OPEC and its allies, together known as OPEC+, have been announcing monthly production quota increases since April.

That's taken a toll on oil prices. As of Thursday, front-month Brent crude futures were down 3% month to date.

As far as downside price targets go, Richey said "a sizable drop in the rolling front-month WTI futures contract, to as low as $35 [a] barrel, is by no means out of the question."

Still, CIBC's Babin said that most Wall Street analysts she knows are forecasting smaller supply surpluses of 1.5 million to 2.5 million barrels per day in 2026. So, while a surplus is expected, that 4 million number is on the high end, she told MarketWatch.

"If those larger surpluses do materialize, we could definitely see WTI dip into the low $50s or even below," said Babin. "But I'd expect U.S. producers to respond quickly at those levels - and that could provide some support."

Weekly U.S. oil production reached a record high of 13.644 million barrels per day for the week ended Oct. 24, 2025.

U.S. oil production was at 13.644 million bpd for the week ended Oct. 24, a record high based on data going back to 1983, according to a weekly report from U.S. Energy Information Administration released Wednesday.

Traders are keeping the potential for a 4 million bpd supply surplus on their radar, but most are treating that call as "an outlier, at least for now," said Babin.

-Myra P. Saefong

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10-30-25 1642ET