The three constantly moving parts that play the most salient roles in shaping sentiment are trade wars or macroeconomic considerations, if you will, which affect oil demand; the OPEC+ policy change, which foretells increasing supply, and geopolitics, which is as volatile and capricious as some global policymakers. Starting with macroeconomics and the perennial battle for global dominance, the market seems sceptical of the weekend’s US-China trade talks. Whilst it is undeniably a welcome step in the right direction, imminent results are not anticipated, and even when they come, the pre-Trump status quo will not be re-established. Trade barriers will likely be erected, and that much was acknowledged by the Fed which decided to leave interest rates unchanged yesterday, given the elevated anxiety level of renewed inflationary pressure and rising unemployment. It triggered a modest jump in equities. Further strength is anticipated today as a trade deal between the US and the UK is to be announced.
The OPEC+, or more precisely, the Saudi bombshell, to add oil back to the market faster than originally anticipated is still being digested, not just by the market, but by the peccant party as well. Kazakhstan, in a complete U-turn, now promises to uphold its commitment to the OPEC+ agreement. We have been here before, and unless it actually and factually falls in line and proves that it has turned compliant, the Saudi stance will unlikely change, and the oil market will need to deal with 2.2 mbpd more oil by November than before April.

A war of words erupted between the US and the Houthi rebels as to who exactly had capitulated after a ceasefire had been agreed upon. The jump in prices on Monday and Tuesday was partly the result of the Houthi attack on an Israeli airport and the retaliatory measures from the Jewish state, but yesterday’s sell-off was partly triggered by the alleged truce. It might encourage traffic through the Suez Canal, but the callous offensive in Gaza and the West Bank is not exactly the recipe for permanent peace. Atrocities towards international shipping will probably resume in the not-so-distant future.

As mentioned above, these parts are moving speedily; they change day-to-day, and investors adjust their views equally fast. What appears relatively stagnant and solid amidst the incalculable economic and oil balance prospects is the depressed level of US oil inventories. One might argue that yesterday's EIA report, which recorded drawdowns in crude and distillate stocks and a marginal build in gasoline inventories, was neutral. Yet, total commercial stockpiles show a semi-decent deficit compared to last year and to the long-term seasonal norm. Since US oil stocks make up well over 40% of OECD inventories, the current tally paints a tightish picture in the developed part of the world. For this reason, our market is well supported around last month’s lows; on the other hand, the power of sentiment must not be underestimated. A breakdown in trade talks between the world’s two largest economies or a set of inauspicious economic data could easily sour the mood. For now, however, the newly established trading range is $58 to $68 basis Brent.

Bearish Skew Amidst Persistent Uncertainty

Although oil prices successfully defied gravity on Monday and Tuesday and impressively bounced off the year’s lows, the updated monthly prognosis on oil balance from the EIA is not exactly encouraging. It is stating the obvious when uncertainty and unpredictability are emphasised, but the obvious must be re-iterated frequently as a warning that forecasts and projections are merely snapshots. The macroeconomic outlook is fluid, the impact of the trade tension initiated by the Trump Administration is ambiguous; consequently, both the demand and supply sides of the oil balance are subject to regular revisions. The uncertainty, as the EIA points out, is embodied in implied volatility, the reflection of expectations for price changes in the future. Data from the CME, based on futures and options, shows that implied volatility on crude oil has averaged above 35% since the beginning of April, spiking to 39% on April 8. This is comparatively high as ‘normal’ times see volatility averaging under 30%.
And does unpredictability prevail. All one needs to do is just to look at the monthly estimates of both global oil demand and non-OPEC+ supply. Since the election last November, this year’s demand estimates have been downgraded from 104.35 mbpd to 103.71 mbpd. It is notable that the latest forecast has seen a monthly upgrade of 70,000 bpd, again, an unmistakable sign of turbulent economic prospects. Next year’s figures were first released at the beginning of the year. In January, the world was seen needing 105.14 mbpd of oil. In a Trump world, even 1 day can seem an eternity, let alone five months. The latest estimate puts global consumption at 104.61 mbpd, a downside amendment of 530,000 bpd. 

On the supply front, the picture is as blurred as on the demand side. Non-Doc supply at 61.22 mbpd for this year is only 190,000 bpd less than last November but is 500,000 bpd below the February prediction. For 2026, the cut between January and May is 560,000 bpd – from 62.43 mbpd to 61.87 mbpd.

The latest salvo from the OPEC+ alliance to unwind voluntary production constraints faster than originally announced and anticipated has been accounted for in Tuesday’s Short-Term Energy Outlook, although some might feel inclined to accuse the EIA of being too conservative. This year’s DoC production of petroleum and other liquid fuels is now seen at 42.90 mbpd, up from 42.85 mbpd. For the second half of the year, the increase is 90,000 bpd, and for 2026, it is 190,000 bpd. More supply from OPEC+ is compensated by the reasonably decent rise in global consumption. In other words, there has been an upward revision of the call on non-OPEC+ oil for the balance of this year (+180,000 bpd) and for 2026 (+50,000 bpd), too.

Rising demand for the group’s oil, nonetheless, does not entail a tight balance; quite the opposite. OPEC+ output is still anticipated to well exceed the calls. The EIA projects global oil inventories to rise 420,000 bpd this year, 590,000 bpd in 2H 2025 and by a whopping 810,000 bpd in 2026. These huge numbers insinuate significant swelling of OECD oil inventories, which, in turn, ought to limit any upside price potential. Consequently, oil price forecasts have been revised down once again. Brent is now seen averaging $66/bbl in 2025 (year-to-date mean is around $72/bbl, the curve for the balance of the year is around $61/bbl). For next year, the price of the European benchmark is projected to fall to $59/bbl with the 2026 curve around $62/bbl. Based on these figures, it is hard to be overly optimistic on oil for the foreseeable future, but again, it needs to be repeated that the update is just a snapshot, and the view can and possibly will change rapidly.

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