Oil prices are facing downward pressure, with ICE Brent dropping below $62 per barrel, the lowest since late October. The oil market is edging further into an expected surplus, with additional price pressure anticipated by 2026. Russian oil supply remains uncertain, as Russian seaborne export volumes remain high, but these barrels are struggling to find buyers.
Russian Oil Supply Challenges
The need for steeper discounts on Urals oil to attract buyers and avoid sanctioned entities has become apparent. If unsuccessful, Russian oil output may begin to decrease, though Russia has circumvented sanctions, embargoes, and drone attacks since 2022. Recent American Petroleum Institute figures showed a 4.8 million barrel drop in US crude oil inventories, exceeding the 1.3 million barrel decline expected by the market.
The refined products sector saw notable stock builds as gasoline and distillate inventories increased by 7 million barrels and 1 million barrels, respectively. The EIA forecasts US crude oil production to hit 13.61 million barrels per day in 2025. However, production is expected to decline to 13.53 million barrels per day in 2026, down from a previous 13.58 million barrels per day estimate due to the low price environment and reduced drilling activity.
With ICE Brent falling below $62 a barrel, we are clearly seeing the market’s belief in an oil glut solidifying. This downward pressure is expected to continue into early 2026, creating opportunities for bearish positions. Traders should consider buying put options or establishing bear call spreads on front-month contracts to capitalize on this sentiment.
The American data presents a conflicted but ultimately bearish picture for demand. While the drop in crude inventories was larger than expected, the massive 7 million barrel build in gasoline stocks is a major red flag for consumption. With US gasoline demand in November 2025 tracking nearly 3% below the same period last year, this suggests refiner margins, or crack spreads, will likely weaken further in the coming weeks.
Global Demand and Economic Softness
Globally, the situation supports this cautious view, even with the uncertainty around Russian supply. While we believe Russia will manage to redirect its barrels as it has since 2022, slowing manufacturing activity in key markets like China, whose PMI has struggled to stay above the 50-point expansion mark for months, tempers the demand outlook. This broader economic softness reinforces the thesis that supply will continue to outweigh consumption.
The EIA’s forecast for a record 13.61 million barrels per day of US production in 2025 adds to the immediate oversupply, even as they anticipate a slight pullback next year. This longer-term view suggests the current low prices might not be permanent, making defined-risk strategies prudent. Using put spreads on early 2026 contracts allows us to profit from the current downward trend while limiting exposure should the market begin pricing in future production cuts.
