In September 2025, the market was concerned about a potential oversupply of oil, as crude/condensate loadings surpassed April 2020 levels (when oil prices crashed) for the first time. As a result, the m1/m3 prompt time spread narrowed across oil benchmarks, as sentiment regarding the ability to absorb these additional volumes waned. The gap between departures and arrivals on a 3-month moving average surged to 2.34mbd in November 2025, about 100kbd below peak levels in April 2020, indicating that the market was struggling to absorb these additional barrels.

However, departures have slowed over the past three months, while arrivals have caught up, reducing the surplus barrels in the market. The tightening of crude supplies is also reflected in oil prices, with the m1/m3 prompt time spreads strengthening across major oil benchmarks.

Surplus mainstream barrels absorbed by the market

Another concern among oil producers was the accumulation of crude/condensate on the water, including both crude/condensate in transit and volumes held in floating storage. Splitting these crude supplies by origin and comparing these volumes to the 2016-2025 seasonal averages, most of the additional barrels originated from Iran, Russia, and Venezuela, growing by 152mb in 2025, resulting in a record surplus of 234mb in mid-January before retreating slightly. Conversely, the surplus in mainstream barrels was notable only between late September and early December, after which it returned to normal levels.

The growth in sanctioned barrels on water has had a limited impact on mainstream oil markets, as few buyers exist for these sanctioned crude supplies, with China accounting for the majority of purchases. With mainstream oil on water returning to normal levels and demand for it in India rising, oil prices are likely to remain supported in the near term.

Stockbuilding activities and new refinery capacities in 2026 could support oil imports

China stockpiling activities increased 40% y-o-y from 148kbd in 2025 to 205kbd in 2025, with the potential to continue in 2026 as approximately 104mb of new storage capacity is set to come online. With low global onshore inventories outside China remaining at the lower end of the 5-year seasonal range, market participants are likely to build onshore stocks when prices remain attractive, potentially setting a floor for oil prices.

But the elephant in the room is the global oil supply. If global liftings were to surge again to the level of Sep-Oct 2025, following the steep correction in January, a renewed build of oil at sea would follow suit – possibly with a stronger knock-on impact on onshore inventories than the last time. Conversely, the risks to Iranian and Russian supplies appear to increase gradually. However, any shortfall there can be counterbalanced for months by drawing down the respective oil-on-the-water stocks of sanctioned barrels.

In addition to potential stockbuilding activities, new refinery startups, such as the Norinco-Aramco Huajin Refinery (300kbd) and the HPCL Barmer Rajasthan (180kbd), and refinery upgrades, such as the Balikpapan RFCC refinery upgrade (100kbd), the Vizag residue refinery upgrade (80kbd) and the Panipat refinery upgrade (200kbd), will continue to support global crude imports, though most of the new capacity additions in 2026 are concentrated in Asia. The departures-to-arrivals shortfall observed in January, coupled with more supportive price indicators, could entice oil producers to release more barrels to the market if the situation persists. But downside risks to prices could prompt producers to hold off for a bit longer.

Source: Vortexa