Oil Prices Hit a Five-Month Low Due to Higher Supply and US-China Tensions

Oil prices are continuing their tumble this week, sitting at their lowest levels in five months, as a combination of increasing global supply, weakening demand, and renewed geopolitical tensions have rattled global energy markets. Brent crude futures fell to $62 per barrel, while West Texas Intermediate (WTI) dropped to $58 this morning, as investors reacted to bearish forecasts from the International Energy Agency (IEA) and escalating trade friction between the United States and China.

The decline reflects mounting concern over a widening imbalance between oil supply and demand. According to the IEA's latest monthly report, global oil consumption grew by 750,000 bpd year-over-year in the third quarter of 2025 - a modest increase from the tariff-disrupted second quarter. However, demand growth remains far below historical norms, with the agency now projecting annual gains of just 700,000 bpd in both 2025 and 2026.

On the supply side, output continues to climb rapidly. Global oil supply jumped by 760,000 bpd month-over-month in September to reach 108 Mbpd, driven largely by a 1 Mbpd production increase from OPEC+ countries led by the Middle East. Overall, supply is expected to grow by 3 Mbpd this year and a further 2.4 Mbpd in 2026, with the U.S., Brazil, Canada, Guyana, and Argentina leading non-OPEC+ growth. OPEC+ is also adding substantial volumes, with output forecast to rise by 1.4 Mbpd in 2025 and 1.2 Mbpd in 2026 as the group unwinds previous production cuts.

These supply numbers are swelling global inventories and pushing the market further into surplus. Global oil stocks rose by 17.7 million barrels in August to a four-year high of 7.9 billion barrels, while oil-on-water volumes surged by 102 million barrels in September - the largest monthly increase since the COVID-19 pandemic. With production rising faster than consumption, the IEA now warns that the world could face a supply surplus of up to 4 Mbpd by 2026, equivalent to nearly 4% of total demand.

Geopolitical tensions are adding to fuel market uncertainty. Trade relations between Washington and Beijing have deteriorated in recent weeks, with new tariffs, export restrictions, and sanctions announced by both sides. These developments have fueled a "risk-off" sentiment in financial markets, further pressuring oil prices. Meanwhile, the reduction in Russian refined product exports due to sustained attacks on energy infrastructure is tightening diesel and jet fuel markets, even as crude supply builds.

The combination of abundant supply, weakening demand, and geopolitical headwinds is reshaping the oil market outlook. With inventories swelling and backwardation spreads narrowing, near-term prices will remain bearish.