Crude Surplus Returns: JPMorgan Sees 1.4 Million bpd in October

By Daniel Okafor

JPMorgan estimates the global crude oil market ran a surplus of 1.4 million barrels per day in October, widening from about 1.1 million bpd in September. That October figure nearly matches last year's full-year average surplus of 1.3 million bpd.

Brent crude fell from $118 a barrel, about NT$3,900, last Friday to $103, about NT$3,400, on Tuesday. The $15 slide erased most of the war premium that supported prices after the Middle East conflict began.

JPMorgan's commodities research team puts Brent's fair value at $94 a barrel, about NT$3,100. The geopolitical risk premium inside the price compressed from $24 a barrel, about NT$790, to roughly $9, about NT$300. More than two-thirds of the premium vanished within days.

The market now prices barrels rather than headlines.

What pushed the market back into oversupply?

JPMorgan attributes the reversal to three overlapping forces: a recovering Middle East supply base, rising Latin American output, and shrinking consumption.

Middle East oil exports have climbed from a March low of 9.8 million bpd to about 20.7 million bpd now. That remains below the pre-war average of 24.7 million bpd, yet a large volume of crude has returned to the international trading system.

Latin America now supplies about 1.5 million bpd more crude than a year ago. Brazil contributes roughly 800,000 bpd of that increase, Venezuela about 400,000 bpd, Guyana about 300,000 bpd and Argentina about 100,000 bpd. Deepwater field development and capacity expansion keep raising the region's weight in global supply.

Demand has moved the other way. JPMorgan estimates global oil consumption has fallen by about 3.3 million bpd since the war began, with declines of 4.1 million bpd in September and 3.5 million bpd in October. Record prices and supply disruptions forced downstream users to cut consumption, absorbing a substantial share of the shortfall in refined products, LPG and petrochemicals.

The bank nets it out: Middle East flows sit about 4 million bpd below pre-war levels, other regions add about 1.5 million bpd, and demand drops by about 3.8 million bpd. October's 1.4 million bpd surplus follows from those three numbers.

Supply recovery plus demand destruction still points the same way.

Do trade flows and inventories confirm the balance?

The same report says they do.

Global crude imports averaged 43 million bpd in September, up 500,000 bpd year on year, then climbed further to 44.9 million bpd in October, up 1.3 million bpd year on year.

Inventories point the same way. South Korea's Strategic Petroleum Reserve has recovered from a June low of 50 million barrels to 67 million barrels, a five-year high. OECD members in Europe collectively added about 11 million barrels over the past three weeks. Global inventories now stand at about 7.999 billion barrels, up 23 million barrels from August and 12 million barrels from September.

Drawdowns have stopped, and barrels are accumulating again.

Why are crude and refined products diverging?

On the crude side, the world has largely replaced the supply gap created by the war. Restored Middle East flows and higher output elsewhere filled the gap and then some, pushing crude inventories back up in September after a sharp August drop.

Refined products tell a different story. JPMorgan notes that diesel, gasoline and LPG expected from Middle East refineries and processing facilities cannot be replaced quickly by capacity elsewhere, because that capacity was already insufficient. A demand freeze, not additional supply, absorbed the resulting gap.

Global refined product inventories now stand at about 3 billion barrels, near the low end of the historical seasonal range, with the United States the main source of the drawdown. JPMorgan estimates those inventories were flat to slightly lower in October, extending a downtrend in place since February.

Crude is loosening while product markets remain tight.

What is HSBC projecting for Saudi Arabia?

HSBC raised its Saudi Aramco crude production forecasts in a report, citing a faster-than-expected recovery in Saudi exports.

• Fourth quarter 2026: 8.3 million bpd.
• 2027: 9.8 million bpd.
• Direction of travel: a return to about 10 million bpd by mid-2027.

Saudi crude exports recovered to about 7 million bpd in October, close to pre-war levels, and the speed of additional capacity releases will determine whether the surplus narrows or widens further.

Both banks' analyses point the same way: "Supply disruptions caused by the Middle East war are easing." Those Saudi figures remain forecasts, not settled supply.

What changed after the war shock?

The U.S.-Israeli war against Iran triggered the worst supply shock to global oil markets in decades, blocking Middle East crude exports and disrupting shipping through the Strait of Hormuz. It also constrained export capacity at major producers including Saudi Arabia. Markets feared an energy cutoff, and crude prices and geopolitical risk premiums spiked together.

The market has since shifted from shortage panic to fundamental pricing based on real supply-demand balances and inventory changes. JPMorgan points to stabilizing Middle East exports, rising Latin American output and high prices suppressing consumption.

Ceasefire expectations remain only whispers of a possible U.S.-Iran agreement. JPMorgan sees room for prices to converge toward its $94 fair value if such expectations are realized and the oversupply persists.

What should traders watch?

Two variables carry the most weight. Refined product inventories already sit at seasonal lows, so a demand recovery or persistent refining bottlenecks could keep diesel and gasoline prices more resilient than crude and could detach refining margins from the crude curve. Second, the pace of Saudi export releases will decide the size of the surplus.

JPMorgan's core message is clear: "The market has stopped drawing down inventories and begun rebuilding them." Returning to pre-war oil price highs would likely require a stronger catalyst than ceasefire headlines.

Watch the product inventories and the Saudi export tape. Both matter more than the next diplomatic headline.