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The concept of supply and demand is central to explaining how markets trade. Excess supply refers to a situation where the quantity of goods supplied exceeds the quantity demanded at the current price. This exerts downward pressure on prices.

Here is a more detailed explanation of how excess supply makes prices go down:

When supply outstrips demand, it means there are more units of a good available than buyers are willing to purchase at the given price level. This results in surplus inventory for sellers. Basically volume. Basically futures contracts.

Facing excess supply, sellers become motivated to reduce prices to make some sales rather than let inventory pile up further. Lower prices also incentivize more buyers to enter the market.

Excess supply signals that prices need to declineto reduce the surplus. The lower prices also make the market more attractive to potential buyers. This happens in the market over and over throughout the trading day.