Amidst a chorus of consensus predicting an "epic crude oil surplus," Barclays has presented a distinctly contrarian view: the scale of the supply glut currently worrying the market is overestimated, its duration exaggerated, while the truly significant changes are set to occur after 2026.
In Barclays' view, the present moment does not mark the beginning of an oil bear market, but rather resembles the "final sentiment mismatch" before a multi-year uptrend cycle.
Why is the market misjudging the situation? The "surplus narrative" itself is fundamentally flawed. Over the past year, the market has repeatedly cited supply-demand forecasts from the IEA and EIA, anticipating a global crude oil surplus of 4-6 million barrels per day by 2026. However, Barclays emphasizes that if a genuine surplus existed, it should first be reflected in inventory levels.
Yet, real-world data does not support this conclusion, Barclays argues.
First, the so-called "4-6 million barrel per day surplus" has simply not materialized in reality. Whether looking at onshore commercial inventories, floating storage, or oil in transit, levels are significantly lower than what these models would imply. The price itself provides the answer—Brent crude has not fallen into the $40-$50 range repeatedly forecast by the market, instead demonstrating notable resilience.
Second, the issue lies not with "missing barrels" of oil, but with a systemic underestimation of true demand. Barclays points out that the market is not "miscalculating supply," but is systematically underestimating the absolute level of demand. The "starting point" for 2026 crude demand itself varies by over 2 million barrels per day across different institutions. The so-called "missing barrels" have not vanished; they are obscured by statistical discrepancies and data lag.
Third, refinery margins and the futures curve are essentially "voting with their feet." Even during the seasonally weakest winter period, global refining margins have remained at respectable levels, sufficient to incentivize continued refinery operations; the Brent and WTI futures curves have persistently maintained a backwardation structure, which typically indicates that the spot market is still paying a premium for immediate supply, rather than being suppressed by a glut.
Based on these three points, Barclays concludes that while a short-term surplus is possible, its scale is closer to 1.5 million barrels per day, and its duration is expected to be very limited. The true inflection point lies not in the present, but after a shift in the "non-OPEC supply paradigm" occurs. If the short-term disagreement stems from a misreading of "inventories and demand," then Barclays' fundamental bullish case for oil points to structural changes in supply post-2026. For the past decade, the global oil market has operated under an implicit assumption: if prices rise, US shale oil will quickly fill the gap. This premise is now becoming obsolete. The latest EIA forecast indicates that after US crude production reaches a record high of approximately 13.6 million barrels per day in 2025, it will see almost no growth in 2026, and could even decline slightly to around 13.3 million barrels per day in 2027. This signifies a clear weakening of the supply elasticity that characterized the past decade—where production would immediately respond to price increases.
Barclays notes that with core plays maturing, costs rising, and high industry concentration, US crude production can no longer easily serve as the "automatic stabilizer." According to Barclays' calculations, US oil supply over the next five years is more likely to remain "broadly flat or experience minor fluctuations," rather than exhibit sustained growth. While there are many new international projects, their rollout is much slower than the market anticipates. Deepwater projects in Brazil, Guyana, and elsewhere will indeed contribute new production in the coming years, but these projects follow a distinct "start-up—ramp-up—plateau" process, unable to replicate the rapid response capability of shale oil. More importantly, against a backdrop of persistently high natural decline rates, new projects primarily serve to "fill the gap" left by declining production from existing fields, rather than creating a net addition to supply.
Within this framework, Barclays presents a highly impactful assessment: by 2028–2030, the average annual increase in non-OPEC crude supply could approach zero. When demand persists but spare capacity vanishes, oil prices can only find equilibrium by moving higher. The true danger of the changes on the supply side lies in the rapid erosion of OPEC+'s "safety buffer." Barclays' analysis suggests that if the demand trajectory falls between the IEA's and OPEC's forecasts—a relatively moderate but more realistic assumption—then OPEC+'s usable spare capacity will decline significantly around 2027, potentially approaching its limit by the end of this decade.
What does this mean? It signifies that the future oil market will transition from a "price-driven cycle" back to a "supply-constrained cycle":
Geopolitical conflicts, extreme weather, and political risks will be rapidly amplified; The overall range of oil price volatility will shift higher; The market will require higher long-term oil prices to re-incentivize capital expenditure and the return of supply.
In this context, Barclays believes that efficiency gains from AI, or even potential production increases it might enable, are not reasons to suppress oil prices, but rather "just-enough" patches. Even with full-scale AI implementation, the additional production it could contribute would only cover part of the future supply gap. This is not a "trade the bounce" opportunity, but the starting point of a cycle re-pricing. Based on the above analysis, Barclays' stance on energy assets is clear: the current phase is not the end of the cycle, but a stage of "undervaluation" within a multi-year uptrend. This also explains why energy stocks have already begun to outperform, even without a decisive breakout in oil prices—the market is starting to price in a new hypothesis of "higher prices for longer," yet valuations remain well below historical cycle peaks.
More importantly, differentiation is occurring:
Upstream resource quality and reserve life are re-emerging as core valuation metrics; The oil services sector, benefiting from high long-term visibility, possesses stronger "cycle extensibility"; The traditional "high-dividend, defensive" label is being replaced by "supply scarcity."
In summary: Barclays contends that while the market remains preoccupied with debating the "theoretical 2026 surplus," the truly important transformation is already quietly underway within the supply-side structure. If this assessment holds true, then the next chapter for oil is not about "how low can it go," but rather "from where will the multi-year bull market begin to be confirmed."
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