Oil prices have fallen to a new five-month low, industry giants say "shorting oil prices at over $50 is foolish."

Despite the continuous decline in oil prices, industry giants are warning against being overly bearish.

Oil prices fell to a five-month low on Tuesday, with Brent crude plunging 3% to $61.50 per barrel, the lowest level since early May. The latest report from the International Energy Agency (IEA) indicates that there is a "significant oversupply" of crude oil, with an expected daily surplus of 3.2 million barrels from this month until June 2026, a substantial increase from the previous estimate of 2 million barrels.

Top global commodity traders unanimously warned at the London Energy Intelligence Forum that the long-anticipated oversupply of oil is finally beginning to materialize, which is expected to further depress oil prices. Ben Luckock, global head of oil trading at Trafigura, stated that oil prices could fall below $60, "and are expected to drop to the low $50s during Christmas and New Year."

However, trading giants also issued cautious signals. Luckock emphasized that "shorting oil prices in the low $50s would be foolish," suggesting that this price level will become an important support level. This statement reflects a skepticism within the industry regarding the sustainability of extremely low oil prices, despite a bearish outlook in the short term.

Earlier this month, OPEC+ announced a modest production increase of 137,000 barrels per day for November, which briefly boosted market confidence, but the IEA's pessimistic forecast has reignited investor concerns about oversupply. Easing geopolitical tensions and escalating trade tensions have also added extra pressure on oil prices.

Industry Giants Warn of Short-Term Decline, But Should Not Be Overly Bearish

According to reports, Gunvor Group CEO Torborn Tornqvist stated in an interview, "It seems we are entering a somewhat different market," noting that although the market has heard warnings of oversupply multiple times before, leading to investor losses, this time the "oversupply narrative is more substantive."

However, Tornqvist also mentioned that while oil futures prices should decline, the market is unlikely to enter a so-called "super contango" state, where future prices are significantly higher than spot prices, making commodity storage very profitable.

Vitol CEO Russell Hardy expects oil prices to average around $60 per barrel next year, a drop of about 14% from the average price so far in 2025. He pointed out that more supply will flood the market in the second half of the year, as "OPEC is steadily increasing production, and non-OPEC countries like Guyana, Norway, and Brazil are also increasing output."

However, Hardy also highlighted several reasons not to be overly bearish:

The market may be overly optimistic about the production capabilities of sanctioned countries like Venezuela and Iran next year; global refineries are operating at full capacity to meet demand; and low oil prices may suppress U.S. shale oil production.

Trafigura's Luckock predicts that oil prices will decline further, but emphasizes that shorting in the low $50s "is foolish," suggesting that this price level will not last long. Analysts believe this viewpoint reflects a belief among traders that extremely low oil prices lack sustainability

IEA Raises Supply Surplus Expectations

The International Energy Agency (IEA) has raised its forecast for the average daily supply surplus in 2026 to 4 million barrels, an increase of 18% from last month's prediction.

The agency noted that there was a "massive" accumulation of oil shipments in September, primarily due to a surge in exports from major oil-producing countries, indicating that current production has exceeded consumption demand.

The IEA warned that if crude oil inventories accumulate in regions like the United States or Europe, which have a greater impact on global oil prices, it could further impact prices. Data shows that global observed inventories have reached a four-year high from January to August this year.

UBS commodity analyst Giovanni Staunovo questioned the IEA's pessimistic forecast. He pointed out that if the market truly expected a significant surplus, oil prices should have already fallen in advance to reflect this expectation, "either the market pricing is completely wrong, or the surplus estimate is overly exaggerated."

OPEC maintained a completely different view in its monthly report on Monday, stating that "despite speculative activities in the futures market, the recent fundamentals of crude oil still provide broad support for the market," and it upheld its previous forecast for global oil demand in 2025