Crude oil falls on supply glut outlook despite US weather-led output disruptions

Crude oil prices declined on Monday amid medium-term oversupply projections driven by persistent output increases from non-Organisation of Petroleum Exporting Countries (non-OPEC) and OPEC+ producers, including Brazil, Canada, and Guyana. Bearish sentiment was further reinforced by the OPEC+ group’s plan to unwind production cuts through December 2025, followed by a pause until March 2026, raising expectations of a supply glut. The price decline came despite extreme cold weather-triggered output disruptions in the United States and maintenance-related oilfield shutdowns in Kazakhstan.

Benchmark Brent crude futures for near-month delivery on the InterContinental Exchange (ICE) fell by 1.68 percent, or US$ 1.11 a barrel, to trade at US$ 64.77 a barrel on Monday, down from US$ 65.88 a barrel the previous day. Similarly, West Texas Intermediate (WTI) Cushing futures for near-month delivery declined by 0.72 percent, or US$ 0.44 a barrel, to US$ 60.63 a barrel, compared with US$ 61.07 a barrel at the previous close.

According to an analyst with AnandRathi Investment Services, “Crude oil futures slipped below US$61 a barrel on Monday, surrendering earlier gains as markets assessed a complex mix of geopolitical, trade, and supply-side developments. Middle East tensions remained in focus following the deployment of a US aircraft carrier strike group, heightening concerns over potential escalation with Iran and risks to regional energy flows. Trade uncertainty also lingered after President Trump threatened 100 percent tariffs on Canada over a potential China deal, although Canadian Prime Minister Carney said Ottawa has no intention of pursuing such an agreement.”

Non-OPEC+ output glut
The US Energy Information Administration (EIA) has projected global crude oil production to increase by 0.8 million barrels per day (bpd) in 2026, with supply from Argentina, Brazil, and Guyana accounting for 0.4 million bpd of the expected global growth. Global crude oil production growth since 2023 has been driven by countries outside the OPEC+ group. Crude oil output rebounded in 2025, rising by an estimated 2.2 million bpd overall, with 1.7 million bpd of growth coming from non-OPEC+ countries, up from 1.1 million bpd in 2024. Production growth from Brazil, Guyana, and Argentina was estimated to account for 28 percent of the global total in 2025.

The independent intergovernmental body, the International Energy Agency (IEA), has estimated that the global crude oil market will enter 2026 with a large surplus. Geopolitical turbulence has kept oil markets on edge at the start of the year, raising questions about future oil exports from Iran and Venezuela. However, the sizeable global oil supply surplus built up over the past 12 months continues to provide a substantial buffer to the market.

The current global surplus has been underpinned by robust growth in oil output since the start of 2025, according to the IEA’s monthly Oil Market Report (OMR). Saudi Arabia has led the rise in OPEC+ supply following the unwinding of production cuts, while the Americas quintet—the United States, Canada, Brazil, Guyana, and Argentina—has dominated non-OPEC+ output increases, accounting for 60 percent of global supply growth.

Barring any significant or sustained disruptions to output—and assuming OPEC+ stays the course with its current production policy and activity in the US shale patch avoids major downshifts—global oil supplies could increase by a further 2.5 million bpd in 2026. Combined with the substantial surplus that has built up in storage tanks and at sea over the past year, this would leave the market with a significant buffer well in excess of demand, which is forecast to rise by 930,000 bpd in 2026.

US-extreme cold weather
Extreme cold weather and severe winter storms caused the deaths of nearly a dozen people and left more than a million without power as a succession of powerful weather systems brought heavy snow, freezing conditions, and bitter temperatures across large parts of the United States. According to reports, 26 states—from Texas to Massachusetts—were under storm warnings issued by the National Weather Service over the weekend, with many alerts remaining in place so far this week.

Electricity outages are expected to last several days in some regions, with more than a million households still without power. Widespread intense cold is spreading southward, with temperatures dropping to as low as minus 20 degrees Celsius in parts of Texas. The extreme cold and freezing conditions have disrupted at least one-fifth of crude oil production, as several oilfields have cut output due to worker shortages and challenging operating conditions. Refinery operations have also been impacted by unfavourable weather conditions. The impact of cold weather was also felt in Europe, where another Atlantic low-pressure system, Storm Joseph, brought heavy rainfall to the Iberian Peninsula.

Russia-Ukraine talk fails
Following the inconclusive first round of talks in Abu Dhabi over the weekend, a second round of Russia–Ukraine talks is expected to be held next week. Meanwhile, two-day discussions involving representatives from Ukraine, Russia, and the United States concluded on Saturday, with “constructive” exchanges on the “possible parameters” for ending the war, Ukrainian President Volodymyr Zelenskyy said. According to a US official who described the meetings as upbeat and positive, the next round of talks is scheduled to begin on February 1, 2026.

Addressing reporters after the first round of talks, Kremlin spokesman Dmitry Peskov said: “Negotiations aimed at ending the Russia–Ukraine conflict are showing signs of progress, but major challenges, particularly over territorial issues, remain a key point of contention on the path to a final settlement. Talks between envoys from Ukraine, Russia, and the United States in recent days in Abu Dhabi were constructive but ended without a breakthrough, and another round is planned for next week. The very fact that these contacts have begun in a constructive manner can be assessed positively, but there is still serious work ahead.”

China market indicators
Profits at China’s industrial firms rose 0.6 percent year-on-year to CNY 7.40 billion in 2025, accelerating from a 0.1 percent increase in the first 11 months of the year. The pick-up was driven by private firms, where profits stabilised after a prior 0.1 percent decline, and by foreign-invested companies—particularly those from Hong Kong, Macao, and Taiwan—whose profits grew at a faster pace (4.2 percent versus 2.4 percent). Profits at state-owned firms remained under pressure, declining by 3.9 percent compared with a 1.6 percent drop previously.

The People’s Bank of China (PBoC) injected CNY 900 billion (US$128.54 billion) into financial institutions on January 23 through its one-year Medium-Term Lending Facility (MLF), aiming to maintain ample liquidity in the banking system. With CNY 200 billion in MLF funds maturing this month, the operation resulted in a net liquidity injection of CNY 700 billion, marking the eleventh consecutive month of net MLF injections.

Outlook
Crude oil prices are likely to remain highly volatile as production resumes in Kazakhstan. New US sanctions on Iran and cold weather-driven production disruptions in the United States are expected to curb global supply, albeit temporarily. Market participants will closely watch headlines surrounding Middle East tensions and developments in the Russia–Ukraine talks. Attention will also shift to the upcoming OPEC+ meeting, where output is expected to remain unchanged, limiting upside for now.


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com