Oil prices recovered from a sharp decline as traders weighed the prospect of a record surplus against the supply risks posed by U.S. sanctions.

West Texas Intermediate crude traded near $59 a barrel after falling nearly 4.2% on Wednesday, its biggest drop since June, while Brent crude hovered above $63. The International Energy Agency (IEA) signaled a worsening outlook for the sixth straight month, with a report on Thursday stating that supply would exceed demand by just over four million barrels per day next year.

Producer group OPEC—which has been restoring idled capacity this year—said the day before that global supply had exceeded demand in the third quarter, reversing its previous forecast for the period of a supply shortage.

The bearish outlook for next year has weighed on oil prices again in recent days, with a key indicator—the WTI prompt spread—falling into contango. This price pattern, with near-term contracts trading at a discount to more distant contracts, signals a near-term supply glut, although it also recovered on Thursday.

Crude oil has retreated this year due to widespread expectations of a supply glut. The decline has been driven by rising supply from OPEC and its allies, including Russia, as well as increased production from drillers outside the alliance. WTI posted its third consecutive monthly loss in October and has lost ground so far in November.

"There's a lot of oil supply coming back from OPEC+ countries," Chevron Corp. CEO Mike Wirth told Bloomberg Television. "There was a period of time when it looked like we were going to see more supply coming into the market than demand could absorb."

At the same time, the Trump administration has moved to increase pressure on Russia to end the war in Ukraine, including sanctions against Rosneft PJSC and Lukoil PJSC. An oil trading company that is a unit of Russian oil giant Lukoil began laying off workers days before the sanctions fully took effect.

"The latest round of sanctions appears significant and there are clear risks to supply," said Toril Bosoni, head of the oil markets division at the International Energy Agency, in a Bloomberg TV interview.

This, coupled with Ukraine's attack on Moscow's energy infrastructure, has helped prop up fuel prices and provided support to an oil market previously weighed down by concerns about oversupply. This year's surge in OPEC+ production is being driven by alliance leader Saudi Arabia, although members have signaled they will halt further increases in the first quarter of 2026.

Ahead of that, Saudi Crown Prince Mohammed bin Salman is scheduled to meet with President Trump at the White House next week. Even with a halt in OPEC+ production increases next quarter, a surplus of 3.82 million barrels per day will still exist in that period, up from 2.89 million barrels in the final quarter of this year, according to BloombergNEF projections. (alg)

Source: Bloomberg