Corrections are part and parcel of any trending market. The more extreme the underlying move, the less significant the trigger for a retreat needs to be. Yesterday, in equities, that spark came as traders assessed the impact of the French political crisis and the inactivity of the US government. Meanwhile, gold flirted with its next milestone, the $4,000 per ounce mark and has confidently crossed it over in the early hours of today’s trading.

It remains equivocal how strong the foundations of the AI-induced stock market rally truly are, but the seemingly insatiable appetite for gold must start raising red flags soon. It suggests that the more relentless the rise in equities, the harder the eventual fall will be.

The latest New York Fed Survey of Consumer Expectations (soft data, that is) hints at a textbook nightmare scenario for the US central bank. Respondents are increasingly worried about the state of the job market, which calls for rate cuts, yet remain pessimistic about inflation prospects, a problem that only low interest rates can solve. By any measure, the time was ripe for a gentle correction in equities, which will become more sinister when negative soft data turn into hard ones.

In oil, supply is in focus. The bare minimum that OPEC+ decided to get away with on Sunday still provided some support, alongside the strength in Gasoil and Heating Oil, as a Russian refinery halted distillate production following effective Ukrainian drone assaults. It is manifested in drawdowns in US product inventories, which have triggered an uptick in prices this morning. Yet, the latest monthly EIA update, examined below, paints a picture of an abundance of global supply. In addition to the resumption of Kurdish exports and healthy Venezuelan shipments, the amount of oil at sea has reached a two-year high, according to Bloomberg. Unless Russian sanctions are tightened or the Middle East goes up in flames, there will be no shortage of crude oil in the foreseeable future.

Upward Demand Revision Does Not Tighten Oil Balance

Every forecast on future supply and demand must be taken with a significant pinch of salt. Or perhaps using a tablespoon, whilst it might cause immediate discomfort, will help to avoid a significant dose of disappointment further down the line. Divergences, particularly on the demand side of the equation, are frequently discussed and remain a considerable point of contention. OPEC is the eternal optimist. The group believes that the world will continue to consume a significant amount of oil, whilst the IEA, the energy watchdog of the OECD countries, reckons that reliance on the black stuff is waning, or at least growing at a much slower pace than OPEC estimates.

Somewhere in between lies the EIA, the statistical and analytical arm of the US Department of Energy. Notwithstanding the locked doors of many government buildings in Washington, DC, it published its latest findings on the global oil balance as promised. After a cursory glance at the numbers, the initial enthusiasm of those with a bullish propensity, based on upgrades in consumption data, quickly evaporates. The expansion in supply outpaces that of demand, implying bulging oil inventories for 4Q 2025 and, indeed, for every single quarter of next year.

Before the usual deep dive into the ocean of numbers, it is worth reiterating the EIA’s price prediction, which faithfully echoes the message of the latest figures. The Administration envisages an average Brent price of $62/bbl for the October–December period of 2025. For the first half of next year, protracted downward pressure will see the European crude oil benchmark at $52/bbl. The forward curve, based on last night’s settlements, stands at $65/bbl for 4Q 2025 and $64.50/bbl for 1H 2026.

These rather ominous price estimates are a function of relentlessly rising global and OECD oil inventories. We do not exactly reinvent the wheel when we conclude that oil inventories swell when production or supply exceeds the amount of oil demanded by consumers. And the EIA’s view is that this is indeed the case and will remain so. A positive oil balance is foreseen, even though demand for 2025 was revised upwards month-on-month by 180,000 bpd and for 2026 by 20,000 bpd.

The growth in supply, however, both from the OPEC+ group and producers outside the alliance, will accelerate faster than you could say “government shutdown.” Non-OPEC+ supply is set to increase by more than 2 mbpd in 2025, compared with demand growth of just 1.07 mbpd. When the 620,000 bpd rise in OPEC+ supply is factored in, the result will be a massive 1.87 mbpd stock build throughout the year, sending OECD stocks to 2.934 billion bbls by the end of 2025, nearly 200 million bbls higher than end-2024 inventories.

One might hope for some relief in 2026. After all, demand will expand much faster than non-OPEC+ supply: 1.12 mbpd versus 690,000 bpd. This obviously implies a meaningful jump in the call on DoC oil, 430,000 bpd, to be precise, to 42.22 mbpd. The stage appears set for stock depletion or no less than a slowdown in builds. Unless, of course, the producer group is projected to step on the accelerator, which is exactly what it is expected to do in the name of regaining lost market share. It is seen pumping 44.29 mbpd, an annual increase of 630,000 bpd. When set against the call of 42.22 mbpd, global stocks are expected to build at a rate of 2.07 mbpd throughout 2026. With worldwide stockpiles advancing at this pace, there is nothing surprising in seeing OECD stocks reach 3.163 billion bbls by December 2026, the highest quarterly reading since 3Q 2020, when Brent averaged $43/bbl.

The stock forecast, therefore, aligns perfectly with the price outlook. There are, nonetheless, several moving parts in the formula, and the sum of these parts could turn out to be less, not greater, than the whole. It will be debated in the coming months whether supply, both within and outside the OPEC+ group, can grow at the predicted pace. Several OPEC+ countries have exhausted their spare capacity, and persistently depressed oil prices will make it a considerable challenge for non-OPEC+ producers to meet expectations. Healthy demand growth is a universally accepted fact, but supply prognoses could ultimately prove overzealous.

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