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The crude oil market in June – Less of a crowded place

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SEB - analysbrev på råvaror
SEB - Prognoser på råvaror - Commodity

Saudi Arabia today reduced its official selling prices (OSPs) to Asia in June and crude oil prices are bouncing 6-9% on the back of that news. It signals that Saudi Arabia sees the June crude oil market as less of a crowded place and that it will be easier for the producer to place its desired volumes into the market. In a slight parallel to this we think that it is unlikely to be a wall of surplus oil banging on the door of Cushing Oklahoma in June of a comparable magnitude of May. There is probably a limited risk for a repetition of the crash to -$40/bl for the WTI June contract when it rolls off in only 9 trading days on May 19.

Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Crude oil prices have today been trading a little higher and a little lower until they jumped up 6-9% as Saudi Arabia increased its official selling prices for June versus other benchmarks. Higher official selling prices (OSPs) signals that Saudi Arabia no longer is seeking to push oil into the market at almost any price.

We all know that Saudi Arabia is cutting production down to 8.5 m bl/d but what this is saying is that Saudi sees the June crude oil market as less of a crowded place than before. It will need to work less hard to get oil out the door in June in the amounts it desires.

The WTI May contract crashed oil prices on April 20th. Then prices fumbled around for a week or so before a rally kick-started at the very end of April on the back of emerging signs of demand recovery, cuts by OPEC+ and declines by non-OPEC+ producers. On Tuesday the Brent front-month contract closed above $30/bl for the first time since 13th April before taking a little breather yesterday. 

It is now only 9 trading days left until the WTI June contract rolls off and expires on May 19. Attention is again coming back to what happened on April 20 when the WTI May contract expired and traded down to -$40/bl before closing at -$37/bl. The market is concerned that we might get the same kind of end-of-contract disturbances for the June contract as we got for the May contract.

If so, it is highly unlikely that we would see -$40/bl again since the market now is prepared and knows such an event might happen. It is still possible that the WTI June contract could come under intense selling pressure over the coming 9 trading days as long positions move to exit.

The special thing about the WTI contract is of course that it is based and priced in-land in Cushing Oklahoma in the US. It is land-locked with flows in and out of the storage hub going by pipelines. If inventories in Cushing are full and pipes out of Cushing are full then prices can crash.

Inventories in Cushing Oklahoma have been on a continuous rise for 9 weeks. Inventories there have risen 28 m bl over this period and as of last week they stood at 65.5 m bl which is slightly below the total capacity of 76.1 m bl and on par with levels in 2016 and early 2017. Last week inventories rose by 2.1 m bl in the hub. In all practical terms the hub is now more or less full.

The number of open positions in the WTI June contract yesterday stood at 239 m bl with a comparable amount of long versus short positions. If the 239 m bl long-side of this equation decides to take these contracts to delivery in June the holders of these contracts will actually receive physical volumes in the Cushing Oklahoma physical location.

When the WTI May contract crashed to -$40/bl on April 20 there was an open position of 109 m bl at the start of the trading day. There were basically no buyers for the long positions who wanted and needed to exit since inventories were more or less fully booked for May with nowhere to take physical delivery.

At the moment we see that Cushing inventories are close to full and still rising though the growth rate in inventories is slowing since we are moving towards total capacity.

The WTI June contract however is about June and not about May. The question is thus what are the storage needs in June? How are the bookings in June? Will surplus oil just continue to flush into Cushing also in June with all pipes in and out of the hub clogged by surplus? Probably not.

Delivered oil products in the US last week stood at 25% below last year which is equal to a decline of close to 5 m bl/d. This is terribly bad, but still better than a YoY decline of 6 m bl/d in mid-April.

But demand in the US is on its way back and demand will by June most definitely be better than it is now. Maybe down only 2-3 m bl/d YoY (which is still exceptionally weak).

Supply in the US and Canada is however declining rapidly and is expected to be down by 3.5 to 4.5 m bl/d versus pre-Corona levels already in the Month of May. It turns out that shutting down a shale oil well is easy, quick and is not damaging to the overall production of the well when it is opened at a later stage.

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So, if US demand is back up to within 2-3 m bl/d versus normal in June and supply in the US and Canada is down by 3.5 to 4.5 m bl/d already in May, then there shouldn’t be a massive wall of oil banging on the door of Cushing Oklahoma to get in in June as was the case in May. As such bookings for Cushing Oklahoma inventory in June should be much less strained in June than in May even if we still see rising inventories there right now.

This lowers the risk significantly for a price crash repetition on the 19th of May when the June contract rolls off comparable to what happened to the WTI May contract on the 20th of April.

US Cushing Oklahoma oil inventories rose another 2.1 m bl/d last week to 65.5 m bl which is on par with levels from 2016 and 2017 and only about 10 m bl below max storage capacity of 76.1 m bl. Inventories are in all practical terms full.

US Cushing Oklahoma oil inventories
Source: SEB, Bloomberg, US DOE

Analys

Volatile but going nowhere. Brent crude circles USD 66 as market weighs surplus vs risk

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SEB - analysbrev på råvaror

Brent crude is essentially flat on the week, but after a volatile ride. Prices started Monday near USD 65.5/bl, climbed steadily to a mid-week high of USD 67.8/bl on Wednesday evening, before falling sharply – losing about USD 2/bl during Thursday’s session.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

Brent is currently trading around USD 65.8/bl, right back where it began. The volatility reflects the market’s ongoing struggle to balance growing surplus risks against persistent geopolitical uncertainty and resilient refined product margins. Thursday’s slide snapped a three-day rally and came largely in response to a string of bearish signals, most notably from the IEA’s updated short-term outlook.

The IEA now projects record global oversupply in 2026, reinforcing concerns flagged earlier by the U.S. EIA, which already sees inventories building this quarter. The forecast comes just days after OPEC+ confirmed it will continue returning idle barrels to the market in October – albeit at a slower pace of +137,000 bl/d. While modest, the move underscores a steady push to reclaim market share and adds to supply-side pressure into year-end.

Thursday’s price drop also followed geopolitical incidences: Israeli airstrikes reportedly targeted Hamas leadership in Doha, while Russian drones crossed into Polish airspace – events that initially sent crude higher as traders covered short positions.

Yet, sentiment remains broadly cautious. Strong refining margins and low inventories at key pricing hubs like Europe continue to support the downside. Chinese stockpiling of discounted Russian barrels and tightness in refined product markets – especially diesel – are also lending support.

On the demand side, the IEA revised up its 2025 global demand growth forecast by 60,000 bl/d to 740,000 bl/d YoY, while leaving 2026 unchanged at 698,000 bl/d. Interestingly, the agency also signaled that its next long-term report could show global oil demand rising through 2050.

Meanwhile, OPEC offered a contrasting view in its latest Monthly Oil Market Report, maintaining expectations for a supply deficit both this year and next, even as its members raise output. The group kept its demand growth estimates for 2025 and 2026 unchanged at 1.29 million bl/d and 1.38 million bl/d, respectively.

We continue to watch whether the bearish supply outlook will outweigh geopolitical risk, and if Brent can continue to find support above USD 65/bl – a level increasingly seen as a soft floor for OPEC+ policy.

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Analys

Waiting for the surplus while we worry about Israel and Qatar

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SEB - analysbrev på råvaror

Brent crude makes some gains as Israel’s attack on Hamas in Qatar rattles markets. Brent crude spiked to a high of USD 67.38/b yesterday as Israel made a strike on Hamas in Qatar. But it  wasn’t able to hold on to that level and only closed up 0.6% in the end at USD 66.39/b. This morning it is starting on the up with a gain of 0.9% at USD 67/b. Still rattled by Israel’s attack on Hamas in Qatar yesterday. Brent is getting some help on the margin this morning with Asian equities higher and copper gaining half a percent. But the dark cloud of surplus ahead is nonetheless hanging over the market with Brent trading two dollar lower than last Tuesday.

Bjarne Schieldrop, Chief analyst commodities, SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Geopolitical risk premiums in oil rarely lasts long unless actual supply disruption kicks in. While Israel’s attack on Hamas in Qatar is shocking, the geopolitical risk lifting crude oil yesterday and this morning is unlikely to last very long as such geopolitical risk premiums usually do not last long unless real disruption kicks in.

US API data yesterday indicated a US crude and product stock build last week of 3.1 mb. The US API last evening released partial US oil inventory data indicating that US crude stocks rose 1.3 mb and middle distillates rose 1.5 mb while gasoline rose 0.3 mb. In total a bit more than 3 mb increase. US crude and product stocks usually rise around 1 mb per week this time of year. So US commercial crude and product stock rose 2 mb over the past week adjusted for the seasonal norm. Official and complete data are due today at 16:30.

A 2 mb/week seasonally adj. US stock build implies a 1 – 1.4 mb/d global surplus if it is persistent. Assume that if the global oil market is running a surplus then some 20% to 30% of that surplus ends up in US commercial inventories. A 2 mb seasonally adjusted inventory build equals 286 kb/d. Divide by 0.2 to 0.3 and we get an implied global surplus of 950 kb/d to 1430 kb/d. A 2 mb/week seasonally adjusted build in US oil inventories is close to noise unless it is a persistent pattern every week.

US IEA STEO oil report: Robust surplus ahead and Brent averaging USD 51/b in 2026. The US EIA yesterday released its monthly STEO oil report. It projected a large and persistent surplus ahead. It estimates a global surplus of 2.2 m/d from September to December this year. A 2.4 mb/d surplus in Q1-26 and an average surplus for 2026 of 1.6 mb/d resulting in an average Brent crude oil price of USD 51/b next year. And that includes an assumption where OPEC crude oil production only averages 27.8 mb/d in 2026 versus 27.0 mb/d in 2024 and 28.6 mb/d in August.

Brent will feel the bear-pressure once US/OECD stocks starts visible build. In the meanwhile the oil market sits waiting for this projected surplus to materialize in US and OECD inventories. Once they visibly starts to build on a consistent basis, then Brent crude will likely quickly lose altitude. And unless some unforeseen supply disruption kicks in, it is bound to happen.

US IEA STEO September report. In total not much different than it was in January

US IEA STEO September report. In total not much different than it was in January
Source: SEB graph. US IEA data

US IEA STEO September report. US crude oil production contracting in 2026, but NGLs still growing. Close to zero net liquids growth in total.

US IEA STEO September report. US crude oil production contracting in 2026, but NGLs still growing. Close to zero net liquids growth in total.
Source: SEB graph. US IEA data
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Analys

Brent crude sticks around $66 as OPEC+ begins the ’slow return’

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SEB - analysbrev på råvaror

Brent crude touched a low of USD 65.07 per barrel on Friday evening before rebounding sharply by USD 2 to USD 67.04 by mid-day Monday. The rally came despite confirmation from OPEC+ of a measured production increase starting next month. Prices have since eased slightly, down USD 0.6 to around USD 66.50 this morning, as the market evaluates the group’s policy, evolving demand signals, and rising geopolitical tension.

Ole R. Hvalbye, Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

On Sunday, OPEC+ approved a 137,000 barrels-per-day increase in collective output beginning in October – a cautious first step in unwinding the final tranche of 1.66 million barrels per day in voluntary cuts, originally set to remain off the market through end-2026. Further adjustments will depend on ”evolving market conditions.” While the pace is modest – especially relative to prior monthly hikes – the signal is clear: OPEC+ is methodically re-entering the market with a strategic intent to reclaim lost market share, rather than defend high prices.

This shift in tone comes as Saudi Aramco also trimmed its official selling prices for Asian buyers, further reinforcing the group’s tilt toward a volume-over-price strategy. We see this as a clear message: OPEC+ intends to expand market share through steady production increases, and a lower price point – potentially below USD 65/b – may be necessary to stimulate demand and crowd out higher-cost competitors, particularly U.S. shale, where average break-evens remain around WTI USD 50/b.

Despite the policy shift, oil prices have held firm. Brent is still hovering near USD 66.50/b, supported by low U.S. and OECD inventories, where crude and product stocks remain well below seasonal norms, keeping front-month backwardation intact. Also, the low inventory levels at key pricing hubs in Europe and continued stockpiling by Chinese refiners are also lending resilience to prices. Tightness in refined product markets, especially diesel, has further underpinned this.

Geopolitical developments are also injecting a slight risk premium. Over the weekend, Russia launched its most intense air assault on Kyiv since the war began, damaging central government infrastructure. This escalation comes as the EU weighs fresh sanctions on Russian oil trade and financial institutions. Several European leaders are expected in Washington this week to coordinate on Ukraine strategy – and the prospect of tighter restrictions on Russian crude could re-emerge as a price stabilizer.

In Asia, China’s crude oil imports rose to 49.5 million tons in August, up 0.8% YoY. The rise coincides with increased Chinese interest in Russian Urals, offered at a discount during falling Indian demand. Chinese refiners appear to be capitalizing on this arbitrage while avoiding direct exposure to U.S. trade penalties.

Going forward, our attention turns to the data calendar. The EIA’s STEO is due today (Tuesday), followed by the IEA and OPEC monthly oil market reports on Thursday. With a pending supply surplus projected during the fourth quarter and into 2026, markets will dissect these updates for any changes in demand assumptions and non-OPEC supply growth. Stay tuned!

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