The dynamics of the global oil market experienced a significant shift, with prices facing downward pressure, a phenomenon not observed since the early days of June, when they settled beneath the $66 per barrel mark. This downward trajectory was catalyzed by the pessimistic supply and demand forecasts released by authoritative bodies such as the International Energy Agency (IEA) and the Energy Information Administration (EIA). Despite these bearish outlooks, there remained a gleam of hope that the impending summit on Friday between Presidents Vladimir Putin of Russia and Donald Trump of the United States might alleviate some of the overarching sanction risks that have loomed over the market.
However, counting on such an outcome might appear somewhat optimistic, especially in light of President Trump’s stern warning of severe repercussions should President Putin not consent to a ceasefire agreement. In the event that the summit does not yield progressive results, President Trump might consider imposing secondary tariffs on additional countries that purchase energy from Russia, further exacerbating market tensions.
The anticipation of an oil surplus extending into the latter part of the current year and persisting until 2026, coupled with the available spare capacity from OPEC, suggests that the market could potentially withstand the impact of secondary tariffs on India. Yet, the scenario becomes significantly more complex should these tariffs extend to other primary purchasers of Russian crude oil, such as China and Turkey.
The IEA’s monthly report on the oil market provided a largely pessimistic view, projecting significant inventory builds as we approach the year’s end and continue into 2026. The agency forecasts that the global demand for oil will see an increase of 680,000 barrels per day (b/d) in the current year, climbing marginally to 700,000 b/d in 2026. Conversely, the global oil supply is expected to experience a growth of 2.5 million b/d in 2025 and 1.9 million b/d in 2026. These adjusted supply expectations can be attributed to OPEC+’s decision to unwind previous cuts. Despite the predominantly gloomy outlook, the IEA did not overlook potential risks concerning the supply from Russia and Iran, hinting at the possibility of further sanctions.
The EIA’s weekly inventory report echoed the bearish sentiment with a revelation that U.S. crude oil inventories had seen an increment by 3.04 million barrels over the preceding week, overshooting the 1.5 million barrel build reported by the American Petroleum Institute (API) a day earlier. The rise in inventories was primarily fuelled by a notable increase in imports.
On the refined products front, gasoline stocks underwent a decline of 792,000 barrels in line with expectations for the summer months, maintaining levels roughly around the 5-year average. Distillate stocks, on the other hand, saw a rise of 714,000 barrels. Despite distillate inventories increasing by 11 million barrels since early July, they still remain relatively tight, suggesting continued support for middle distillates.
Shifting focus to European natural gas, there was a noticeable reduction in net long positions in the Title Transfer Facility (TTF) by investment funds, dropping by 17 Terawatt-hours (TWh) to 105 TWh in the latest reporting week – the smallest position since late May. This reduction in positions likely reflects a strategy by speculators to mitigate risk amidst uncertainties surrounding the outcomes of the Trump-Putin summit, including the possibilities of a ceasefire or the imposition of stricter sanctions.
A potential ceasefire agreement could temporarily depress natural gas prices and renew discussions around the resumption of Russian pipeline flows into Europe, a topic of intense speculation earlier in the year. However, the probability of such pipeline flows resuming remains significantly low.
Despite the steady trading patterns observed with European Union Allowances (EUAs) in recent weeks, investment funds have consistently increased their net long positions, highlighting a growing interest and confidence in the EUA market. This trend signals expectations for a tighter market come 2026, when the supply of EUAs is projected to decline markedly, even though the market is presently well-supplied, a factor likely to cap price surges in the short term.
In conclusion, the global oil market finds itself at a crossroads, influenced by the interplay of geopolitical events, projections of supply and demand, and speculative trading behaviors in both oil and natural gas markets. As we navigate through these tumultuous times, the outcomes of high-stakes political meetings such as the Trump-Putin summit stand to potentially redefine market dynamics, imposing both challenges and opportunities for stakeholders across the energy spectrum.
Disclaimer: The insights provided in this article are for informational purposes only and should not be construed as investment advice, nor do they constitute an offer or solicitation to purchase or sell any financial instrument.
