Oil Market Facing Severe Oversupply, Says Trafigura’s Chief Economist
Saad Rahim, the chief economist at Trafigura, a leading commodity trading firm, recently highlighted a growing concern for the oil market. He pointed out that a “super oversupply” of oil is anticipated next year, driven by a spike in new supply amid a sluggish global economy. Rahim mentioned that an increase in drilling activities and a slowdown in demand growth will likely exert additional pressure on already depressed oil prices.
“Whether it’s dubbed oversupply or super oversupply, it’s challenging to escape that reality,” he remarked during the company’s annual results presentation.
This year, Brent crude oil prices have fallen by 16%, marking one of the steepest declines since 2020. Analysts expect that large-scale production initiatives in regions like Brazil and Guyana will further suppress prices in 2024.
The concept of oversupply isn’t new. It’s been a topic of discussion among financial institutions like Citi and Goldman Sachs over the past year. In a recent note, Goldman analyst Daan Struiben noted a significant increase in global oil inventories, estimating a rise of nearly 2 million tonnes per day over the last month. The bank anticipates continued growth in this inventory over the next few years.
Conversely, demand from China, the leading oil importer, appears to be increasing as the country works to stockpile reserves. There is also a view that growth in Chinese demand will slow next year as electric vehicles become more prevalent, which diminishes the need for gasoline. Interestingly, the recent dip in oil prices has led China to ramp up purchases to bolster its strategic reserves.
Rahim mentioned, “China must maintain this buying trend to stave off a super oversupply situation from emerging even sooner.”
Meanwhile, the U.S. government has been taking steps to keep oil prices down. President Trump had pledged to ramp up domestic production, while there are speculations surrounding the potential replenishment of the Strategic Petroleum Reserve (SPR) by the Biden administration. However, this remains speculative, as such actions could lead to immediate price hikes, particularly given the U.S. has limited reserve capacity for emergencies.
Ben Lecoq, Trafigura’s head of oil trading, predicted in October that prices could dip below $60 a barrel before eventually rising again. “I think we might see prices enter the $50 range somewhere between Christmas and New Year’s,” he noted.
Trafigura recently reported a net profit of $2.7 billion for the fiscal year concluding in September—this is a slight decrease from $2.8 billion the prior year and marks a five-year low, following years of lucrative profits amid the geopolitical fallout of Russia’s invasion of Ukraine.
Interestingly, the company’s nonferrous metals trading arm reported record profits, partly due to shipping copper to the U.S. amid confusing tariff regulations.
CEO Richard Holtum indicated that “significant headline-driven volatility” has characterized the market this year, a trend likely to persist into 2026. He acknowledged that, although last year’s trading conditions were tough, the team’s performance across all sectors remained reliable.
Despite a minor dip in profits and an increase in dividends to employee shareholders, the overall group capital slightly declined from $16.3 billion to $16.2 billion. This marks the first decrease in that figure since 2018.
Trafigura’s employee payments rose significantly, going from $2.0 billion the previous year to $2.9 billion. The company, with its top management based in Geneva, rewards employee shareholders by gradually buying back shares from retiring employees.
