Oil prices under pressure as oversupply looms; may fall further if China stockpiling slows

Oil prices are once again under moderate pressure, primarily due to the continued increase in global oil production easing earlier concerns about market tightness caused by sanctions. 

Industry surveys suggest that OPEC's production saw a further, albeit marginal, increase in October. Reuters estimates indicated a rise of 30,000 barrels per day (bpd) from September. 

This subdued growth was attributed to production declines in three OPEC nations, though these are largely considered temporary outages.

Offsetting this October slowdown are ambitious production targets for 2026, notably from Libya.

Furthermore, the five countries permitted to increase output under the broader OPEC+ agreement have significantly ramped up their production. 

According to Reuters data, this means OPEC alone has added approximately 1.8 million bpd to the market since April. 

As a result, two of the three major energy agencies now anticipate a substantial oversupply in the oil market, Barbara Lambrecht, commodity analyst at Commerzbank AG, said. 

The China factor: absorbing global supply

Despite the clear signs of increased supply, this market oversupply has not yet translated into a significant build-up in OECD inventories. 

Inventories within the Organisation for Economic Co-operation and Development (OECD) remain below their five-year average, though the deficit has marginally decreased, according to Lambrecht. 

The International Energy Agency (IEA), in its latest monthly report, highlighted figures from satellite observer Kayrros. 

These showed that China accumulated nearly 110 million barrels of crude oil stocks between April and August, pushing its total stocks 30% higher than in 2019. 

This trend was reinforced by Chinese customs data published overnight, showing crude oil imports in October at 11.4 million bpd—a figure only slightly down from the previous month but 8% higher year-on-year, signaling a sustained build-up of national reserves.

When will the stockpiling end?

The critical question for the oil market remains how long China’s aggressive stockpiling will continue and, more importantly, when this accumulated oil will begin flowing into the tanks of industrialized OECD countries in larger volumes.

If the new figures show a further increase in OECD stocks, prices could come under pressure," Lambrecht said. 

The direction of developments in China can be inferred by combining today's import data with the crude oil processing and production figures that will be released late next week.

At the time of writing, the price of West Texas Intermediate crude oil was at $60.04 per barrel, up 1% from the previous close. Brent crude oil on the Intercontinental Exchange was 0.9% higher at $63.95 per barrel. 

"Despite this morning’s strength, the bearish tone persists. Traders continue to position themselves to take advantage of a market that remains well supplied, with even signs of a glut," said David Morrison, senior market analyst at Trade Nation.