Analys
Market doubting demand but Saudi/Russia are holding a steady course


Brent crude has sold off hard since 28 September. Fear for the health of the global economy and thus oil demand going forward is at the heart of the sell-off. Prior to that, a clarifying message from the Saudi Energy Minister, Prince Abdulaziz bin Salman, at a conference in Calgary on 18 September to a large degree also removed the USD 100/b plus scenario. Speculators had also accumulated significant long positions in oil since a low point in late June. And the last in have probably been hurt in the sell-off and tried to get out. Lastly we have the US oil inventories published on Wednesday this week which were very bearish as they rose almost 5 m b vs an normal draw this time of year of around 2 m b. And specifically gasoline stocks which jumped 6.5 m b to above the 2015-19 level with gasoline refining margins crashing as a result. But amid all this we still have Saudi/Russia which are holding a steady course with cuts and export reductions to end of year with Saudi spicing this up with Official Selling Price of its Extra Light crude to Europe at USD 7.2/b (Premium to Dubai crude) for November which is the highest since 2002. So USD 100/b plus is not in the cards. But neither is USD 50-60-70/b as Saudi his holding a steady course. Our bet is Brent crude averaging USD 85/b in Q4-23 in a balance between what Saudi Arabia wants and needs versus what is a sensible and acceptable level for the global economy.
The December Brent crude oil contract has fallen from an intraday high of USD 95.35/b on 28 September to now USD 83.9/b, a loss of USD 11.4/b. At heart of this decline is concerns for the outlook for the global economy and thus oil demand.
The clear and almost unanimous message from central banks across the board towards the end of September was ”interest rates higher for longer”. Add in flows for US government bonds where China and Japan no longer are big buyers (if at all), the US Fed is a net seller of bonds (QT) rather than a buyer (QE) while the US government is selling more and more bonds. This has driven the US 10yr government bond yield higher and higher to a recent peak of 4.8% which is the highest since 2007. With no relief in sight, this ”interest rate pain” is going to hurt the global economy and thus oil demand. This is probably one key reason/trigger for why oil has sold down so hard recently.
An other reason is probably the message to the market which Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, delivered to the market at a conference in Calgary on 18 September. He made it very clear that the current cuts were not about driving the oil price to the sky, but rather that it was precautionary versus uncertain demand. Further that if demand indeed turned out to be strong then hallelujah, they would produce more. The oil market has probably been a bit confused on this point with some saying that the aim of Saudi cuts was to drive crude oil above USD 100/b. Such kind of views was pushed aside by the Saudi minister. A sustained move above USD 100/b was very unlikely after the minister’s statements.
Speculators added more than 300 million barrels of net long positions late June. These have probably taken money off the table in the recent sell-off and thus contributed to the sharpness in the sell-off.
Then we have the US oil inventory data this Wednesday which gave a very bearish message to the market. Rather than a seasonal draw of around 2 m b the total US commercial crude and product stocks rose 4.6 m b. With this the US commercial oil stocks are only about 15 m b below the smoothed 2015-19 seasonal average. Gasoline stocks roes 6.5 m b to a level slightly above the 2015-19 average with implied US gasoline demand falling to the lowest level since 2008. The gasoline refining margin, the crack, has now collapsed to less than USD 6/b while it was more than USD 30/b in late August. US inventories of crude and middle distillates are still significantly below normal. In total almost 50 m b below the 2015-19 level. This is an uncomfortable situation ahead of the winter which keeps the market in a partial bullish grip.
A key bullish driver for crude oil has been the stellar overall refining margins. This has give refineries incentive to buy as much crude as they could and convert it to oil products which consumers could consume. Bullish for crude oil demand. A part of this bullishness has dissipated with the collapse of the gasoline crack. The diesel and jet fuel cracks are however still unusually strong at USD 26/b and USD 31/b vs. seasonal norms of around USD 16/b. Strong mid-dist cracks and still low inventories of middle distillates ahead of the winter will induce refineries to keep processing crude and churn out oil products. As such we should expect US gasoline stocks to continue higher. Gasoline cracks could thus drop yet lower from an already very low level.
But amid all this bearishness we still have OPEC+. We still have Saudi/Russia. And they are holding a strong and steady course. They are extending existing cuts and export reductions to the end of the year. They haven’t wavered for a second. Backing up this picture of steadfastness is the fact that Saudi Arabia has lifted its Official Selling Prices (OSPs) for November. By USD 0.5/b to USD 3.4/b for its Extra Light grade to Asia vs. a 10yr average of USD 2.3/b. And to Europe it has lifted it to USD 7.2/b which is the highest since 2002. These are reference prices vs. the Dubai marker. With this Saudi Arabia is saying to the market: ”You are free to buy our crude, but it will cost you”. It is a way of making its supply less available to the market. Making it more expensive.
Yes, Brent crude can of course sell off further and test the USD 80/b line for a little while. But Saudi/Russia are holding a steady course and USD 85/b is a great price. It should be acceptable for a shaky global economy as well as for Saudi/Russia for the time being.
The December Brent crude oil contract has fallen like a rock since its intraday high of USD 95.35/b on 28 Sep. Interest rates ”high for longer” has created deep concerns for oil demand going forward.
US commercial crude and product stocks are converging to the 2015-19 average and thus easing the bullishness in the market.
US gasoline stocks were up 6.5 m b last week and are now above the 2015-19 average. They could rise yet higher as implied demand is very weak and refineries keeps producing more gasoline because they are trying to satisfy the market’s craving for middle distillates where stocks are still low.
As a result the ARA gasoline crack has crashed to less than USD 6/b and could fall further.
But Saudi Arabia is holding a strong and steady course. It keeps its production at 9 m b/d vs. a normal of 10 m b/d to the end of the year. And to back it up it has lifted its official selling prices further to Asia and to the highest since 2002 to Europe (Extra Light).
Analys
More from OPEC+ means US shale has to gradually back off further

The OPEC+ subgroup V8 this weekend decided to fully unwind their voluntary cut of 2.2 mb/d. The September quota hike was set at 547 kb/d thereby unwinding the full 2.2 mb/d. This still leaves another layer of voluntary cuts of 1.6 mb/d which is likely to be unwind at some point.

Higher quotas however do not immediately translate to equally higher production. This because Russia and Iraq have ”production debts” of cumulative over-production which they need to pay back by holding production below the agreed quotas. I.e. they cannot (should not) lift production before Jan (Russia) and March (Iraq) next year.
Argus estimates that global oil stocks have increased by 180 mb so far this year but with large skews. Strong build in Asia while Europe and the US still have low inventories. US Gulf stocks are at the lowest level in 35 years. This strong skew is likely due to political sanctions towards Russian and Iranian oil exports and the shadow fleet used to export their oil. These sanctions naturally drive their oil exports to Asia and non-OECD countries. That is where the surplus over the past half year has been going and where inventories have been building. An area which has a much more opaque oil market. Relatively low visibility with respect to oil inventories and thus weaker price signals from inventory dynamics there.
This has helped shield Brent and WTI crude oil price benchmarks to some degree from the running, global surplus over the past half year. Brent crude averaged USD 73/b in December 2024 and at current USD 69.7/b it is not all that much lower today despite an estimated global stock build of 180 mb since the end of last year and a highly anticipated equally large stock build for the rest of the year.
What helps to blur the message from OPEC+ in its current process of unwinding cuts and taking back market share, is that, while lifting quotas, it is at the same time also quite explicit that this is not a one way street. That it may turn around make new cuts if need be.
This is very different from its previous efforts to take back market share from US shale oil producers. In its previous efforts it typically tried to shock US shale oil producers out of the market. But they came back very, very quickly.
When OPEC+ now is taking back market share from US shale oil it is more like it is exerting a continuous, gradually increasing pressure towards US shale oil rather than trying to shock it out of the market which it tried before. OPEC+ is now forcing US shale oil producers to gradually back off. US oil drilling rig count is down from 480 in Q1-25 to now 410 last week and it is typically falling by some 4-5 rigs per week currently. This has happened at an average WTI price of about USD 65/b. This is very different from earlier when US shale oil activity exploded when WTI went north of USD 45/b. This helps to give OPEC+ a lot of confidence.
Global oil inventories are set to rise further in H2-25 and crude oil prices will likely be forced lower though the global skew in terms of where inventories are building is muddying the picture. US shale oil activity will likely decline further in H2-25 as well with rig count down maybe another 100 rigs. Thus making room for more oil from OPEC+.
Analys
Tightening fundamentals – bullish inventories from DOE

The latest weekly report from the US DOE showed a substantial drawdown across key petroleum categories, adding more upside potential to the fundamental picture.

Commercial crude inventories (excl. SPR) fell by 5.8 million barrels, bringing total inventories down to 415.1 million barrels. Now sitting 11% below the five-year seasonal norm and placed in the lowest 2015-2022 range (see picture below).
Product inventories also tightened further last week. Gasoline inventories declined by 2.1 million barrels, with reductions seen in both finished gasoline and blending components. Current gasoline levels are about 3% below the five-year average for this time of year.
Among products, the most notable move came in diesel, where inventories dropped by almost 4.1 million barrels, deepening the deficit to around 20% below seasonal norms – continuing to underscore the persistent supply tightness in diesel markets.
The only area of inventory growth was in propane/propylene, which posted a significant 5.1-million-barrel build and now stands 9% above the five-year average.
Total commercial petroleum inventories (crude plus refined products) declined by 4.2 million barrels on the week, reinforcing the overall tightening of US crude and products.


Analys
Bombs to ”ceasefire” in hours – Brent below $70

A classic case of “buy the rumor, sell the news” played out in oil markets, as Brent crude has dropped sharply – down nearly USD 10 per barrel since yesterday evening – following Iran’s retaliatory strike on a U.S. air base in Qatar. The immediate reaction was: “That was it?” The strike followed a carefully calibrated, non-escalatory playbook, avoiding direct threats to energy infrastructure or disruption of shipping through the Strait of Hormuz – thus calming worst-case fears.

After Monday morning’s sharp spike to USD 81.4 per barrel, triggered by the U.S. bombing of Iranian nuclear facilities, oil prices drifted sideways in anticipation of a potential Iranian response. That response came with advance warning and caused limited physical damage. Early this morning, both the U.S. President and Iranian state media announced a ceasefire, effectively placing a lid on the immediate conflict risk – at least for now.
As a result, Brent crude has now fallen by a total of USD 12 from Monday’s peak, currently trading around USD 69 per barrel.
Looking beyond geopolitics, the market will now shift its focus to the upcoming OPEC+ meeting in early July. Saudi Arabia’s decision to increase output earlier this year – despite falling prices – has drawn renewed attention considering recent developments. Some suggest this was a response to U.S. pressure to offset potential Iranian supply losses.
However, consensus is that the move was driven more by internal OPEC+ dynamics. After years of curbing production to support prices, Riyadh had grown frustrated with quota-busting by several members (notably Kazakhstan). With Saudi Arabia cutting up to 2 million barrels per day – roughly 2% of global supply – returns were diminishing, and the risk of losing market share was rising. The production increase is widely seen as an effort to reassert leadership and restore discipline within the group.
That said, the FT recently stated that, the Saudis remain wary of past missteps. In 2018, Riyadh ramped up output at Trump’s request ahead of Iran sanctions, only to see prices collapse when the U.S. granted broad waivers – triggering oversupply. Officials have reportedly made it clear they don’t intend to repeat that mistake.
The recent visit by President Trump to Saudi Arabia, which included agreements on AI, defense, and nuclear cooperation, suggests a broader strategic alignment. This has fueled speculation about a quiet “pump-for-politics” deal behind recent production moves.
Looking ahead, oil prices have now retraced the entire rally sparked by the June 13 Israel–Iran escalation. This retreat provides more political and policy space for both the U.S. and Saudi Arabia. Specifically, it makes it easier for Riyadh to scale back its three recent production hikes of 411,000 barrels each, potentially returning to more moderate increases of 137,000 barrels for August and September.
In short: with no major loss of Iranian supply to the market, OPEC+ – led by Saudi Arabia – no longer needs to compensate for a disruption that hasn’t materialized, especially not to please the U.S. at the cost of its own market strategy. As the Saudis themselves have signaled, they are unlikely to repeat previous mistakes.
Conclusion: With Brent now in the high USD 60s, buying oil looks fundamentally justified. The geopolitical premium has deflated, but tensions between Israel and Iran remain unresolved – and the risk of missteps and renewed escalation still lingers. In fact, even this morning, reports have emerged of renewed missile fire despite the declared “truce.” The path forward may be calmer – but it is far from stable.
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