Oil markets, supply and the outlook for prices

Key takeaways:

• Oil prices have adjusted more quickly than physical supply volumes, while the market has demonstrated a strong ability to develop alternative routes and operational workarounds during periods of disruption.

• Oil production could exceed consumption by a significant margin during the remainder of the year, although the timing and scale of the anticipated surplus remain subject to geopolitical developments.

• China will be central to determining how the surplus affects prices. Renewed purchases for its strategic reserves could absorb excess supply and keep prices elevated, particularly when crude becomes comparatively inexpensive.

• Prices could fall below $60 per barrel before the end of the year if China delays replenishing its reserves. However, the $60 level may encourage renewed Chinese buying and therefore provide some support to the market.

• The possibility that global oil demand peaked in 2025, or is approaching a prolonged plateau, could represent a major structural shift for OPEC and the wider oil market.

• Production management is considerably more difficult in a shrinking market. Producers seeking to maintain sales volumes would need to gain market share, increasing the likelihood of price competition between suppliers.

• The departure of a major producer such as the UAE from OPEC would increase supply and place further pressure on the remaining members. Additional departures could weaken the organisation’s ability to coordinate production.

• Although geopolitical shocks could still drive prices sharply higher, declining oil intensity means that larger and more sustained disruptions may now be required to produce a meaningful increase in prices.