The oil glut will last into 2026. Here's why it's unclear how big it will be.

"The global oil market may be at a tipping point" for crude prices as the surplus pulls further and further ahead of demand, said Toril Bosoni, the head of the IEA's oil industry and markets division. Either producers such as OPEC+ are going to have to slow down their production, Bosoni said, or other countries are going to need to begin filling up their stores at a quicker pace so that the market's supply and demand can rebalance to a healthier level.

Prices for Russian oil have risen well above a price cap imposed by Western allies as part of sanctions over the invasion of Ukraine. And that is putting the cap to its first serious test. — Glut buster? An oil rig in eastern Siberia. (AP Photo/Sergey Ponomarev, File)·ASSOCIATED PRESS

The notion of a large incoming glut remained relatively unchallenged until Oct. 22, when the Treasury Department announced its wave of sanctions against Rosneft and Lukoil. Brent and WTI futures both climbed by more than 5%, rising to their biggest weekly gains since June.

Together, Rosneft and Lukoil export roughly 3 million b/d of crude oil, according to Goldman Sachs. Just how much of that supply will come off the market is a major swing factor for global pricing.

Right now, Goldman Sachs analysts are predicting that around 500,000 to 600,000 b/d of oil is at risk of being taken off the market in 2026. If that holds true, the analysts wrote, they see prices falling roughly 15% to $56 and $52 per barrel for Brent and WTI crude, respectively, further hammering an industry already operating under painful margins.

But if the sanctions were to be applied much more severely and cut Russian supply by 1.5 million b/d, global supply would sharply drop off and the incoming glut would be much tighter, pushing prices to above $84 and $70 before settling at $73 and $63, respectively.

The linchpin, Burkhard said, is the threat to buyers of Russian barrels. Under the Treasury's sanctions, those companies could face anything from a fine to being cut off from the US financial system. Major Indian buyers of Russian oil have already said they plan to "reduce their crude imports in the near term due to the sanctions," Rystad analysts wrote.

In other words, it's not that Russia won't look to export its oil but that no one will want to risk buying it.

When President Trump placed strict sanctions on Iranian oil in 2018 during his first term, Brent prices jumped to around $86 per barrel. But just before those measures went into effect, Trump granted waivers to most major buyers, and prices fell to around $50 within two months.

Meanwhile, the oversupply in 2025 has also not been as severe thus far as had been predicted, Mizuho oil analyst Kumar told Yahoo Finance. Kumar said that tells him next year's glut also likely won't be as bad as the market has been thinking.

"There is this underlying strength in demand," Kumar said. "A much-anticipated build-up of global crude inventories is finally showing up, but oversupplied conditions could be short-lived."

The oil industry will be hoping for prices to hold steady through some magic combination of market factors, even if that's unlikely. The breakeven price at which US oil and gas companies can turn a profit with drilling sits at $63 per barrel, according to respondents in a recent Kansas City Federal Reserve survey.

The point at which prices are strong enough to encourage an increase in drilling is even higher, survey respondents said, at $78 per barrel — a mark WTI hasn't seen since January.

At the end of the day, the market's fundamentals look strong on their face, said S&P Global's Burkhard. Just how big a glut will emerge is instead largely going to be driven by the specter of the US Treasury's sanctions, and just how much risk the world's producing nations see in oversupply.

"It's fear and fundamentals," S&P Global's Burkhard said. "Which one is going to win out now?"