The size of the 2026 oil glut is open to question, and OPEC+’s next move remains up in the air.
As 2025 draws to a close, the world oil market reflects a near-consensus that the coming year will see substantial oversupply and inventory accumulation, pushing the global benchmark Brent crude oil down to slightly above $60 per barrel. For many OPEC+ participants, and Saudi Arabia in particular, this is a challenging situation, as it pits short-term financial pain against long-term revenue maximization. But given the marked shift in Saudi policy in late 2024 toward retaking market share, the most likely outcome is that they will maintain that course in order to seek to curtail investment in competing suppliers, especially in the United States.
While geopolitical risk issues related to sanctions against Russia and Venezuela have provided a bit of a brake to the recent price declines, it is noteworthy the extent to which the market has been able to tune out developments like President Trump’s recent seizure of a Venezuelan oil cargo and his stated intention of doing so repeatedly in what would amount to a partial blockade.
The Trajectory of the Oil Market in 2026
The enhanced sanctions that the United States announced against major Russian oil companies Rosneft and Lukoil in October also failed to reverse the price trend, as the market surmised that while trade patterns would shift and Russian revenues would be impacted, actual export volumes would not be curtailed very much.
The potential for shifts in these variables leans mostly in a bearish direction. Venezuela produces only around one million bpd, which is one-third of what it was before Hugo Chavez came to power in the late 1990s. Regarding Russia, there is much more concern in the market about a potential peace agreement and lifting of sanctions than there is about actually seeing export volumes fall more substantially.
Apart from that, the size of the 2026 oil glut is open to question. More bullish analysts rightly point out that forecasts from the International Energy Agency (IEA) have a track record of underestimating demand growth. But the record ratio of short to long positions by speculative traders in crude oil shows the strength of the consensus that there will be a substantial oversupply.
This collision between supply and demand has been coming for a long time. OPEC+ has been raising output quotas steadily for most of 2025 despite the trend toward falling prices, before pausing the rise of output quotas, but not reversing course, at the last meeting in early November.
The Future of the Saudi Oil Supply
Saudi officials had begun signaling to the market in late 2024 that they were shifting course toward retaking market share. While not trumpeted as such, this represented a reversal of the previous policy of trying to support prices above around $80 per barrel by cutting production and pushing the rest of OPEC and OPEC+ to contribute. Sometimes the Saudis went above and beyond themselves to curtail output and prevent excess supply, like they did with Energy Minister Abdallah bin Salman’s awkwardly named “lollipop” unilateral cut in 2023, which obviated the need to build consensus. That proved to be the last gasp of a failed policy, as prices still slid into 2024.
The Saudis eventually accepted that their desired price range was untenable —it just led to too much growth in non-OPEC, and particularly US, shale oil production. They had to choose between short-term pain and long-term revenue declines and wisely chose the former.
It is noteworthy that the Saudis have adjusted their public messaging since late 2024 to emphasize the lessons of the oil glut of the 1980s, when Saudi Arabia served as a “swing producer” that balanced the market despite rampant cheating from the rest of OPEC. This has continued into 2025, with Saudi television commentators emphasizing the mistakes of the 1980s and Crown Prince Mohammed bin Salman’s bold shift toward a market share strategy, very conveniently ignoring that this is a reversal of the policy of aggressive OPEC+ price defenses he had advocated from the December 2016 OPEC meeting until the late 2024 policy shift. This has served to educate the Saudi public about the short-term versus long-term revenue tradeoff and the need for a period of low prices to curtail competing supply growth.
With the shift toward a market share strategy and a more restrained use of OPEC+ supply cuts to respond to short-term demand declines such as the deep recession caused by the 2020 COVID-19 pandemic, it is much easier to restructure the OPEC+ quota system to reflect actual production capacities. The previous rounds of cuts beginning in 2016 had been framed from “actual production levels,” obviating the need to agree on each other’s capacity numbers. That could strengthen OPEC+ if it ever again needs to respond to a demand shock.
The Oil Supply-Side Problem
But for now, the problem is clearly on the supply side. The US Energy Information Administration (EIA) already forecasts a decline in US production in 2026, after hitting new records through 2025. Brent is likely to drop into the $50s in 2026, with definite risk to the downside on those forecasts. The Saudis are clearly prepared for that scenario and will not go back to cutting production, as that would run counter to their goal of curtailing competing supply growth.
If there were a demand shock in 2026 — like a recession — we could see a policy recalibration for the short term, but it is not likely the Saudis or OPEC+ will take any sort of dramatic action to accommodate a supply overhang.
About the Author: Greg Priddy
Greg Priddy is a senior fellow for the Middle East at the Center for the National Interest. He also consults for corporate and financial clients on political risk in the region and global energy markets. From 2006 to 2018, Mr. Priddy was Director, Global Oil, at Eurasia Group. His work there focused on forward-looking analysis of how political risk, sanctions, and public policy variables impact energy markets and the global industry, with a heavy emphasis on the Persian Gulf region. Prior to that, from 1999 to 2006, Mr. Priddy worked as a contractor for the US Energy Information Administration (EIA) at the US Department of Energy. Mr. Priddy’s writing has been published in The New York Times, The National Interest, Barron’s, and the Nikkei Asian Review, among others.
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