Why Crude Prices Remain High Despite Oversupply

By Dennis Kissler, BOK Financial

February 05, 2026 12:11 PM CST

Global crude markets entered 2026 with a puzzling contradiction: Despite a sizeable global oversupply, they have remained stable and, at times, even risen.

Dennis Kissler, BOK Financial

Standard supply-and-demand theory would normally push prices sharply lower in an environment like this. However, today’s oil market is shaped not only by physical barrels but also by geopolitics, producer strategy and traders’ expectations, which is why this seeming contradiction persists.

We already saw the impact of geopolitics when, despite the global oversupply, prices jumped by about $6/bbl at the start of 2026 due to heightened tensions around Iran and Venezuela.

However, before we delve into geopolitics, let’s take a look at the degree of oversupply.

The International Energy Agency (IEA) projects a 2026 surplus of around 3.69 MMbbl/d to 3.84 MMbbl/d of global crude supplies, even after raising demand forecasts. I personally believe this number falls more in the 2 MMbbl/d to 2.5 MMbbl/d area, as the IEA’s projections lately have missed many marks.

Even at 2 MMbbl, the market is still oversupplied; however, oversupply on paper does not always translate into lower prices. Oil prices respond just as strongly to the threat of disruption as to actual supply data.

Geopolitical factors continue to prevent prices from falling too far

And this threat of disruption is very much alive. Global conflicts and political tensions are injecting uncertainty into the market, as they can flip the current balance to a supply deficit very quickly.

First, the ongoing Russia-Ukraine conflict has introduced periodic threats to Russian export stability. Ukrainian attacks on Russian energy infrastructure have kept traders on alert, preventing aggressive short-selling.

Second, the Trump administration remains focused on Iran, which currently exports nearly 1.3 MMbbl/d, so the stakes are high for the oil market. Already, the U.S. has tightened sanctions enforcement against Iranian logistics, placing 2 MMbbl/d to 3 MMbbl/d of Iranian supply at risk.

Although President Donald Trump has said he’s open to negotiations, he has also said a naval blockade is not out of the question if tensions rise further. Even without direct action, the mere possibility of harsher sanctions influences traders’ decisions.

Venezuela, meanwhile, appears more stable at the moment, but the underlying situation remains fragile. Sanctions, political risk and infrastructure challenges are keeping its export outlook unpredictable. Altogether, U.S. oil companies involved in the region face breakeven economics that require WTI near $70 or higher to justify additional production.

If crude drops too low, these producers will halt expansion and output will decline. That adds another layer of support to global prices.

In sum, while overall global supplies remain ample, there does seem to be the rising possibility that supplies could see more headwinds in the future.

At the same time, OPEC, and especially Saudi Arabia, plays a central role in keeping prices supported, and that’s as true now as ever. Keep in mind the comfort zone for Saudi Arabia to stay in an economically balanced budget is close to $80/bbl for Brent or $75/bbl for WTI. Whenever prices drift too far below that level, OPEC has shown a consistent willingness to cut production.

That means that if WTI drops into the low $50s, another round of cuts becomes highly likely. The lower the prices fall, the more likely it becomes that OPEC intervenes.

And then there’s domestic U.S. production to consider. Advancements in drilling technology have made U.S. shale more efficient than ever. Producers can extract more oil with fewer rigs, but this efficiency works both ways. When prices fall, rigs are idled, and production can decline rapidly. Once a rig is taken offline, the loss in output accelerates.

If prices were to remain in the low $50s or dip into the $40s, U.S. production would likely drop to late-2023 levels. This sensitivity keeps traders cautious about betting on a long-term price collapse.

The invisible force holding prices up

Altogether, these types of events inject a risk premium that can lift prices even as near-term fundamentals stay bearish. And yes, even in a fully supplied market, this built-in risk premium exists.

Refineries, airlines, supply chains and global transportation all depend on uninterrupted access to crude. When even small supply streams are threatened, buyers are willing to pay more to ensure security. That willingness adds dollars to the barrel, regardless of how much oil is sitting in storage.

For most traders, the decision is whether it’s smarter to be long or short. Looking at the past five years and ignoring extreme financial crises, the long side has historically carried a better risk/reward profile, especially when WTI prices are near or below $50/bbl, whereas the upside is influenced by multiple geopolitical triggers, weather, etcetera. The downside is cushioned by OPEC strategy and U.S. shale economics.

Source: https://www.hartenergy.com/energy-market-transactions/financing/he-kissler-oil-price-supply/