The Global Oil Glut Returns as High Prices Crush Demand

The global crude oil market is experiencing a return to oversupply, analysts from Goldman Sachs and JPMorgan warn. Demand destruction due to high prices is causing concerns of a deficit to vanish and a glut to emerge. In September, the global oil market surplus was estimated at 1.1 million barrels per day, which rose to 1.4 million bpd in October, close to the average of 1.3 million bpd from the previous year, according to JPMorgan.

Goldman Sachs, however, sees the market balanced in both September and October, despite reports of increased oil exports from the Persian Gulf and recent Iranian attacks on tankers in the Strait of Hormuz, with five incidents reported in the past week alone. The investment bank also noted no global oil inventory declines over the past two months, following several draws in previous months to stabilize fuel prices.

The glut scenario may be premature, as futures and physical prices remain far higher than they were at the start of the year, with the war premium still strong after the U.S. midterm elections. Middle East seaborne oil exports have slightly decreased from recent post-war highs due to heightened risks in the Strait of Hormuz, but remain at 86% of pre-war levels, according to Vortexa.

The International Energy Agency estimates a global oil demand destruction of 2.6 million barrels daily this year, with a September supply recovery of 2.5 million barrels. However, the agency warns that annually, supply will decline by 5.8 million barrels daily, bringing the total to 100.7 million barrels.