The global oil market is currently in a state of equilibrium, caught between two powerful and opposing forces. On one hand, investors are grappling with the reality of an emerging surplus in crude supply. This is largely driven by the decision of the OPEC+ alliance to gradually return more of their previously idled production back to the market, coupled with increasing output from non-OPEC countries.
This growing glut has put downward pressure on prices, with benchmark futures declining this year. The outlook is further weighed down by a forecast from the International Energy Agency predicting a record surplus by 2026.
On the other hand, this bearish sentiment, is being counterbalanced by significant geopolitical risks that threaten to disrupt supply. The most immediate of these is a new wave of US sanctions targeting major Russian oil producers like Rosneft and Lukoil. These sanctions have already disrupted certain crude flows and caused the price of Russia’s flagships crude to plunge to its lowest level in over two years.
As a result, key benchmarks like Brent crude were trading near USD 64 per barrel, while West Texas Intermediate was below USD 60. This tension was summarized by energy analyst Saul Kavonic, who noted that the market is trying to balance the bearish supply outlook against the bullish risks of oil supply disruptions from Russia and other global hotspots.
Adding to the global supply is Canada, where oil sands output has climbed to a record high. This is facilitated by the newly expanded trans Mountain pipeline, which is now able to bring more crude oil to Asian markets after years of capacity constraints. Production of oil is expected to grow even further in the coming years.
Global Oil Supply Faces Multiple Threats Beyond Russia
Despite the overwhelming surplus, several other geopolitical flashpoints are providing a potential floor for prices. These include attacks in Sudan that have reduced exports, Iran’s recent seizure of an oil tanker near the critical Strait of Hormuz, and ongoing US pressure on Venezuela.
The US government’s plan to designate a Venezuelan cartel led by President Maduro as a terrorist organization, alongside President Trump’s refusal to rule out military intervention, keeps the risk of supply disruption from the oil-rich nation alive. Furthermore, the strengthening alliance between the US and Saudi Arabia, highlighted by a planned meeting and discussions of advanced fighter jet sales, adds another layer of complexity to the global energy landscape, influencing market dynamics.
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