Asian oil refiners are expanding their crude sourcing to more distant regions, moving beyond their traditional reliance on Middle Eastern suppliers. However, this diversification strategy has failed to bolster markets as the current crude oil market is expected to face an oversupply situation.

Asia consumes approximately 40% of global oil, with crude supplies historically dependent on the Persian Gulf region. But President Donald Trump's scattered trade and diplomatic policies, including the sudden inclusion of Russian crude in sanctions targets, have forced refiners to scramble for oil from the United States, Brazil, and Nigeria.

Light sweet crude plays a key role in Brent pricing, and the surge in its procurement should have supported Brent crude prices and boosted price spread indicators that reflect market health. However, this has not been the case. Instead, Brent crude's premium over Dubai crude, the Middle Eastern benchmark, has fallen to its lowest level since April.

Part of the reason lies in traders' expectations that oil supplies will flood the market in the coming months, with crude production increasing both within and outside the OPEC+ alliance.

"We are approaching the critical point of supply surplus," said Gary Ross, senior oil advisor and hedge fund manager at Black Gold Investment Company. "People have been talking about surplus for a long time - everyone is pessimistic about the supply-demand balance in the fourth quarter, and we are step by step approaching the cliff."

The market expects crude oversupply to begin next quarter, primarily due to OPEC+ restoring most of the capacity shelved during the pandemic this year, while non-alliance oil producers like the United States, Brazil, and Guyana are also increasing production.

According to OilX data from energy consulting firm Energy Aspects, global average daily production this year is 1.4 million barrels higher than the same period in 2025, an increase that is more than double the International Energy Agency's (IEA) latest estimate for full-year demand growth.

Aldo Spanjer, head of energy strategy at BNP Paribas, noted: "In the fourth quarter of this year, and especially in the first quarter of next year, market demand will obviously weaken."

Trump's aggressive diplomatic and trade policies have also led to crude flow realignments and triggered significant uncertainty and volatility. Calculations show that Indian refiners unusually purchased about 20 million barrels of crude in the spot market this month to avoid Russian supplies. Although they have recently resumed buying Russian crude, it remains unclear whether this trend can continue.

Additionally, there are signs that Trump's pressure on countries to reduce trade surpluses with the US is having an impact. At the end of July, a Pakistani refiner agreed to purchase the country's first batch of US crude; earlier this month, Japan's Idemitsu Kosan also stated it purchased small amounts of US crude due to tariff pressure.

June Goh, senior oil market analyst at Sparta Commodities, said the narrowing Brent-Dubai price spread allows US and West African crude to enter Asian markets at more competitive prices, "especially WTI crude pricing extremely low in Asia, opening doors for emerging markets like Pakistan and Vietnam."

Increased demand for US crude has pushed up oil prices at the US Gulf Coast (crude export location), but has provided little support for broader US domestic benchmark oil prices. WTI crude spreads have approached their lowest levels since May, while inventory at Oklahoma's Cushing storage hub has risen for seven consecutive weeks.

The market also faces a bleak and uncertain demand outlook. The extent to which Trump's tariff offensive will suppress global economic growth remains unclear, while the global transition to non-fossil energy continues, particularly evident in China. The IEA states that global oil demand growth this year and next will be less than half that of 2023.

IEA data shows that several refineries in Europe have closed in recent months (including two of six refineries in the UK), meaning the region's crude processing capacity will decline this year. Upcoming refinery maintenance periods in the US and Europe will further weaken refining demand.

Major banks are generally bearish on crude - Goldman Sachs expects Brent crude to decline slightly to the mid-$60s range by year-end - but current indicators suggest oil price declines may exceed expectations.

BNP Paribas's Spanjer stated: "I think the market is waiting for the right moment" to turn bearish on Brent and WTI crude. However, supply growth should slow in the second half of 2026, "and things should start to improve then."