By Arathy Somasekhar
HOUSTON (Reuters) -Oil prices fell on Tuesday, settling 1.5% lower as the International Energy Agency warned of a huge supply glut in 2026, and as trade tensions persisted between the U.S. and China, the world’s two biggest economies.
Brent crude futures fell 93 cents, or 1.5%, to settle at $62.39 a barrel. U.S. West Texas Intermediate crude was down 1.3%, or 79 cents, at $58.70. Both contracts were at a five-month low.
In the previous session, Brent settled 0.9% higher, and U.S. WTI closed up 1%.
The world oil market faces an even bigger surplus next year of as much as 4 million barrels per day as OPEC+ producers and rivals lift output and demand remains sluggish, the International Energy Agency predicted.
On Monday, a monthly report by he Organization of the Petroleum Exporting Countries, and allies including Russia was less bearish than the IEA’s view. It said the oil market’s supply shortfall would shrink in 2026, as the wider OPEC+ alliance proceeds with planned output increases.
However, executives at oil majors and top trading houses said they expect global oil market to tighten in the medium to longer term, recovering from short-term weakness.
“The latest tensions between the U.S. and China will also be a pressure point on crude as China’s economy could be in question if tensions stay elevated,” said Dennis Kissler, senior vice president of trading at BOK Financial.
UBS analyst Giovanni Staunovo said a risk-off mood had taken hold as trade tensions weigh on sentiment and the IEA report was bearish.
U.S. Treasury Secretary Scott Bessent said on Monday that President Donald Trump remained committed to meeting Chinese President Xi Jinping in South Korea this month. Washington and Beijing seek to defuse tensions over tariff threats and export controls.
Last week, however, China expanded export controls on rare earths and Trump threatened 100% tariffs and software export curbs from November 1.
Beijing also announced sanctions on Tuesday against five U.S.-linked subsidiaries of South Korean shipbuilder Hanwha Ocean, while the U.S. and China will begin charging additional port fees on ocean shipping firms.
The Brent oil futures six-month spread traded at its smallest premium since early May, while the WTI spread was at its narrowest since January 2024.
Narrowing backwardation, the market term for immediate deliveries fetching a premium over later deliveries, suggests traders are making less money from selling oil in the spot market because near-term supply is perceived to be ample.
(Additional reporting by Enes Tunagur in London, Anjana Anil in Bengaluru and Emily Chow in Singapore; Editing by Susan Fenton, Barbara Lewis, Sharon Singleton, Frances Kerry and David Gregorio)
