ONG Report: Oil Glut Fears Fade as Gold Shatters Records

Energy markets are entering 2026 on an unexpected footing. Cracks are emerging in the once-dominant oil glut narrative as stronger demand and slowing supply growth begin to tighten fundamentals. At the same time, gold just shattered the $5,000 barrier, reflecting surging safe-haven demand amid global economic uncertainty. Geopolitical risks – from renewed Middle East tensions to a deepening chill in Eastern Europe – are adding a fresh risk premium to oil prices. Together these developments signal a strategic inflection point: investors can no longer take last year’s oversupply or low volatility for granted. It’s a landscape where upside surprises (in both oil and gold) are increasingly likely, and complacency carries greater risk.

The bottom line: A long-forecasted surplus in oil is looking far less certain, just as macro turmoil sends capital flooding into hard assets. Smart investors are watching these shifts closely – the early signs of a potential supply crunch in crude and a historic rally in precious metals could reshape portfolio strategy in 2026.

The ONG Report Summary:

• Oil prices firm as the IEA eases global oil glut fears.
• Stronger demand and slowing supply growth tighten the market.
• Aramco warns of shrinking spare capacity as cuts unwind.
• Gold makes history, shattering the $5,000 per ounce barrier.
• Iran tensions and a U.S. cold snap drive WTI above $61.
• Production declines in Kazakhstan highlight supply fragility.

What’s Driving the Oil Market Rebalance?

Is the oil glut finally fading? A growing body of evidence suggests the oversupply narrative may have been overstated. The International Energy Agency – which led many to fear a massive surplus – has been forced to revise its forecasts upward as real-world data comes in. In its January report, the IEA pegged 2026 oil demand growth at 930,000 barrels per day, a step up from an estimated 850,000 barrels in 2025, thanks to a rebounding global economy and the stimulative effect of last year’s price slide. This demand surprise has clashed with weaker-than-expected supply expansion. In fact, global oil output fell by 350,000 barrels per day in December 2025, marking a second consecutive monthly decline. Total production of 107.4 million bpd in December was 1.6 million below the record high set just three months prior in September. Such figures underscore how quickly producers have pulled back in response to low prices.

To be sure, 2025 still saw ample supply – the IEA estimates global supply grew about 3 million bpd last year – and as of now, there remains a cushion of surplus oil in storage. Benchmark prices are roughly 16% lower than a year ago, reflecting that around 470 million barrels were added to inventories through 2025 (about a 1.3 million bpd build). But the key question for 2026 is the size of that cushion and how fast it could erode. The IEA now acknowledges the overhang is more “modest” than thought, and low prices are already thinning the surplus by curbing new output. Producers globally – from U.S. shale firms to OPEC countries – have scaled back drilling and project sanctioning in the face of weaker margins. This reaction to sub-$70 oil is inevitable, and it is setting the stage for a tighter market ahead as the year progresses.

Importantly, OPEC+ leaders have long disputed the “glut” narrative. The cartel contends that any surplus is mild and will quickly give way to deficit if demand keeps strengthening. Saudi Aramco’s CEO Amin Nasser reinforced this view at Davos, warning that global spare production capacity is down to just 2.5% of demand, below the ~3% safety margin the industry ideally maintains. “If OPEC+ further unwinds cuts, spare capacity will fall even further,” Nasser cautioned, emphasizing the need to “watch this very carefully”. In other words, the buffer to absorb supply shocks is razor-thin – and getting thinner.

Both demand-side strength and supply-side discipline are converging to challenge the oversupply mindset. The IEA and OPEC+ still issue dueling outlooks (each with their own biases), but reality is undercutting the more bearish forecasts. In Washington, even the U.S. government bristled at the IEA’s pessimism – Energy Secretary Chris Wright went so far as to threaten cutting U.S. funding to the agency unless it produced “reality-based” forecasts, prompting the IEA to reverse its stance on peak oil demand and acknowledge no such peak is imminent. The takeaway: neither the IEA nor OPEC have a flawless crystal ball. Investors should weigh the data on hand – rising consumption, flattening output, and minimal spare capacity – at least as heavily as any predictions on paper.

Industry Tidbit: In December 2025, global oil production fell by 350,000 barrels per day — marking the second consecutive monthly decline and placing total output 1.6 million barrels below the record set just three months prior. This kind of pullback, coinciding with stronger demand, explains why surplus estimates are being revised down so dramatically.

Why Gold Just Blew Past $5,000

Oil isn’t the only commodity defying expectations. Gold prices have skyrocketed in early 2026, breaking $5,000 per troy ounce for the first time in history. The rally in gold – up over 17% year-to-date in barely a month – speaks to the intense macroeconomic uncertainty pervading markets. When investors pile into gold, it’s often a sign of flight to safety, and right now multiple factors are pushing them in that direction.

Geopolitical tensions are front and center. From Eastern Europe to the Middle East to the Pacific, the world’s flashpoints have multiplied, and each adds anxiety for global investors. This week’s news flow includes escalating rhetoric between the U.S. and Iran, an unresolved war in Ukraine, and even strains in the U.S.-China strategic relationship – all of which can undermine confidence in the economy and traditional assets. Gold, being the classic safe-haven asset, tends to thrive when uncertainty is high.

Beyond politics, fiscal and monetary concerns are also fueling the gold rush. Many major economies are carrying heavy debt loads and are grappling with inflation that remains above comfort levels. Central banks are walking a fine line with policy. The result is “policy ambiguity” – markets aren’t sure if the next move is easing or tightening, stimulus or austerity. Such ambiguity weakens faith in fiat currencies, as evidenced by a weaker U.S. dollar, which just had its worst week in seven months. A soft dollar, in turn, makes dollar-priced gold cheaper for non-U.S. buyers, boosting demand further.

All these factors have culminated in what analysts call one of the most significant rallies in gold’s long-term trading history. Notably, it’s not just gold: silver and other precious metals have hit record highs alongside gold’s surge, underlining a broad move into hard assets. This broad-based strength points to a fundamental reallocation of capital – institutional investors, in particular, have been raising their allocations to precious metals as a hedge against persistent inflation and potential monetary instability.

The big question now is how sustainable these record prices are. Crossing $5,000 is a psychological milestone; some short-term volatility or profit-taking is to be expected after such a vertical climb. Much will depend on whether the drivers remain in place. If geopolitical conflicts worsen or economic uncertainty deepens, gold could continue to find support and even climb further. Conversely, clear signs of inflation abating or unexpected diplomatic breakthroughs (for example, a resolution in a major conflict) might temper the fear trade and lead some investors to rotate back out of gold. For now, though, the metal’s new high is a telling barometer of market sentiment. It reflects a world where investors are actively seeking insurance for worst-case scenarios – and willing to pay a premium for it. In an era where oil demand surprises to the upside and gold breaks records, diversification across asset classes becomes more than just a mantra; it’s a necessity.

Are Geopolitical Risks Putting a Floor Under Oil Prices?

The oil market’s supply-demand fundamentals are tightening, but an entirely different force is also at play: geopolitics. Over the past week, West Texas Intermediate (WTI) crude surged nearly 3%, settling above $61 per barrel and marking its fifth straight weekly gain. This price jump was not due to inventory data or OPEC decisions, but rather a cascade of geopolitical headlines. In effect, traders have started pricing in a “risk premium” for oil – a buffer for potential supply disruptions – which had been largely absent late last year.

The U.S.-Iran standoff is front and center in this risk re-pricing. President Donald Trump (now in the thick of an election year) revived threats of military action against Iran’s leadership, deploying a Navy carrier strike group toward the Middle East as a show of force. This saber-rattling reminded markets that Iran holds a strategic position in global oil. As one of OPEC’s leading producers, any conflict involving Iran could upend oil flows from the Persian Gulf. Even if the probability of open conflict is low, the stakes are high enough that traders must take it seriously. Analysts note that if a U.S.-Iran clash did occur and spiraled, it could disrupt not only Iran’s 3+ million barrels per day of output but also risk transit through the Strait of Hormuz, through which ~20% of world oil passes. One geopolitical consultancy, Rapidan Energy Group, puts the odds of a “sustained and severe” supply interruption in the region at 20% – not likely, but far from impossible. For oil markets, that 20% risk is too large to ignore in pricing.

The Middle East isn’t the only worry. Russia’s war in Ukraine continues with no clear end in sight. This week the Kremlin publicly poured cold water on hopes of a peace breakthrough, meaning the status quo of sanctions and sporadic disruptions to Russian exports persists. A sudden end to that conflict could theoretically increase oil supply (by easing sanctions on Russian crude), but at this point such an outcome appears remote. Instead, markets are more focused on potential escalations or prolonged tensions that keep a key chunk of the world’s oil isolated. In short, the geopolitical premium cuts both ways – it removes some supply (Russia) and threatens more (Middle East), offering yet another reason for oil to hold a firmer floor price than it did in 2025.

Meanwhile, localized shocks have shown how fragile “comfortable” supply can be. In mid-January, Kazakhstan’s massive Tengiz oilfield was taken offline by a power plant fire, and by late January it had only partially resumed operations. The loss of Tengiz (which normally pumps ~600,000 barrels per day) delivered a brief jolt to prices, reinforcing that unplanned outages are not just hypothetical. Similarly, a record winter storm in the U.S. Northeast has sent regional demand for heating oil and diesel soaring. Refiners have seen margins spike as households scramble for fuel in sub-zero temperatures. Distillate inventories were already tight in that region, and the cold snap is magnifying the issue – a reminder that even within an ostensibly oversupplied global market, pockets of shortage can and do occur.

On top of these supply-side concerns, currency movements are amplifying oil’s gains. The U.S. dollar index just logged its worst week in seven months, partly due to shifting interest rate expectations and transatlantic economic jitters. Because oil is priced in dollars globally, a weaker dollar makes crude cheaper for buyers in Europe, Asia, and elsewhere. This dynamic boosts oil demand at the margin and has contributed to the recent rally. In other words, macroeconomic factors (like exchange rates) are stacking with geopolitical ones to support oil prices, even as headlines still talk of surpluses.

None of this is to say the oil market is definitively tightening into deficit tomorrow – but it is a clear warning against complacency. Indeed, hedge funds and other money managers appear to be responding; bullish bets on WTI futures have climbed, with net-long positions now the highest in five months (according to the CFTC data). Likewise, industry executives are turning cautiously optimistic. The CEO of SLB (formerly Schlumberger), the world’s largest oilfield services firm, said on an earnings call that “the worst may be behind” for oil and predicted a gradual uptick in drilling activity worldwide. These sentiment shifts are significant: they suggest that those with real skin in the game (either financial or operational) see more upside risk than downside in today’s oil market.

Contrast that with the IEA’s official outlook, which still forecasts a sizeable surplus for 2026. The Agency’s latest assessment projects global stockpiles could grow by 3.7 million barrels per day over the year if all else remains equal. That kind of build would indeed weigh on prices – but even the IEA concedes the actual overhang may not reach those levels, especially if producers keep throttling back. The tug-of-war between data and forecasts will likely continue in coming months. In practical terms, it means volatility: as reality diverges from expectation, prices will adjust, sometimes sharply.

For investors, the current environment in oil resembles a coiled spring. Downside appears limited by OPEC+ vigilance, producer discipline, and geopolitical support. Upside, on the other hand, could be significant if demand surprises further or any of the latent risks materialize. It’s a scenario where being under-invested in energy could prove as uncomfortable as being over-invested was a year ago.

Investor Summary

The early weeks of 2026 are delivering a clear message: markets can turn on a dime when assumptions prove false. Many entered this year expecting an oil glut and a ho-hum commodities environment. Instead, we’re witnessing oil prices finding their footing as oversupply fears retreat, and gold prices reaching stratospheric new heights as investors seek safety. These developments carry important implications for portfolios and strategy:

• Energy fundamentals are tightening sooner than anticipated. Even a modest uptick in demand (or a loss of supply) can flip sentiment from glut to potential shortage. Investors should not be caught off guard by outdated consensus views – keep an eye on inventory trends and OPEC+ policy shifts that could accelerate a rebalancing. The main takeaway is cushions are thinner: whether it’s spare capacity at 2.5% or dwindling shale growth, the oil market has less slack to absorb shocks than it did a year ago.
• Geopolitical risk is back as a pricing force. For much of 2025, macro fears (like recession and rate hikes) drove oil down more than any single supply threat. Now, supply threats are mounting and being priced accordingly. We’re reminded that global oil supply still hinges on a few critical chokepoints and players. As an investor, this argues for maintaining exposure to real assets and industries that benefit from volatility – for example, well-capitalized upstream producers or infrastructure assets that can capture widening spreads.
• Safe-haven assets like gold are proving their worth. Gold’s surge above $5,000 is more than an eye-catching headline; it’s a barometer of investor psychology. It tells us that inflation concerns and currency doubts persist, and that a portion of capital is moving defensively. Even if you don’t invest in precious metals directly, this trend can’t be ignored. It may be prudent to review portfolio hedges, whether via commodities, inflation-linked bonds, or other assets that historically hold value when paper money falters.

Looking ahead, the critical question is whether these shifts gain momentum or revert. Will oil’s “modest surplus” evaporate into a deficit by the second half of the year? Will central banks manage a soft landing that cools the gold rush? A prudent investor will prepare for both scenarios – positioning for further commodity strength while being ready to adapt if conditions change.

One actionable insight is the benefit of direct participation in energy projects or funds that have leverage to rising oil prices. Unlike passive index exposure, direct participation can offer enhanced returns and specific tax advantages when energy prices climb. Given the potential for an undersupplied market, such investments could outperform traditional equities if oil breaks out to the upside.

Finally, it’s worth noting the broader narrative here: the supposed “end of fossil demand” or permanently low oil prices has been challenged by reality. Just as the IEA had to backtrack on peak demand pronouncements, investors might consider tempering overly bearish long-term assumptions about oil and gas. The energy transition is real, but so is the multi-year runway of oil demand growth and the chronic underinvestment that could tighten supply. In practical terms, this means there is still value to be unlocked in the oil and gas space, especially for those who move before the crowd re-adjusts its expectations.

At Bass EXP, we don’t just follow the news — we put it to work. The developments in this week’s ONG Report highlight why we continuously analyze market fundamentals and geopolitical signals to inform our strategy. Change brings opportunity. Learn more about direct participation in oil and gas at bassexp.com.