Brent crude prices remained largely unchanged over the past fortnight, hovering between $65 and $66 per barrel, as anticipation of Russian oil re-entering global markets due to ongoing Russia-Ukraine peace talks fueled bearish sentiment.
“The probability of the US placing stronger sanctions on Russia is waning, with the market expecting Russian oil trade to make a comeback as a result of the peace talks — yet this sentiment masks emerging signals toward upside,” Mukesh Sahdev, senior vice president, chief oil analyst at Rystad Energy, said in an emailed commentary.
Oil prices are unlikely to plummet and remain at $60 per barrel, according to Rystad Energy’s analysis of storage fundamentals. This is primarily due to China’s continued stockpiling, with their imports exceeding their needs by 10%, Sahdev said.
Following Friday’s meeting between US President Donald Trump and his Russian counterpart Vladimir Putin, oil prices initially saw modest losses earlier this week.
The meeting yielded no concrete outcomes regarding a ceasefire or an imminent end to the war in Ukraine.
Despite Trump’s prior threats of severe consequences, none have materialised following the meeting.
Trump announced Friday that no punitive tariffs are currently planned against China for its purchases of Russian oil.’
According to Rystad Energy, the probability of the oil market slipping into contango anytime soon seems unlikely.
Inventories
For the week ending August 15, US commercial crude inventories are projected to decrease by 3.59 million barrels, according to Rystad’s analysis.
This anticipated draw follows last week’s unexpected 3.04-million-barrel build.
Despite this recent build, US commercial crude inventories are still 4 million barrels lower than the previous year, indicating continued tight balances.
Rystad Energy does not foresee any significant increases in US production during the fourth quarter of this year.
Strong bearish pressure is anticipated due to the Organization of the Petroleum Exporting Countries and allies’ confirmed plan to unwind 2.2 million barrels per day of voluntary cuts by September, leading to expectations of oversupply in late 2025.
However, it’s important to consider that OPEC+ may not produce at the announced levels, as they have previously raised targets.
Not all of the increased production will enter the export market, Rystad said. Middle East refinery runs are expected to remain stable at 9.6-9.8 million barrels per day.
While refinery runs in the Atlantic region (US and Europe) are projected to decline, global refinery runs are likely to increase by 1.0 million barrels per day by September or October, relative to July, the Norway-based energy intelligence company said.
Sahdev said:
There is also a lack of clarity around the OPEC+ unwind on which barrels will be exported vs. fed into their own refining system.
“We are in an opaque vs. non-opaque fundamentals era, with OPEC vs. non-OPEC production becoming an outdated method of analyzing global oil markets,” Sahdev added.
Liquid balances
Despite global liquid balances suggesting a surplus of 0.8 to 1.8 million barrels per day for the remainder of the year, China is significantly increasing its crude oil storage.
Rystad Energy’s estimates indicate that China could add approximately 250-300 million barrels to its reserves if it continues to import at a rate 10% higher than its refinery crude demand.
“This buying certainly keeps Russia supported with higher pressure on India to reduce the Russian purchase,” Rystad said.
Additionally, from August to September, Russia intends to compensate for its previous overproduction by adhering to OPEC+ quotas.
Meanwhile, upcoming maintenance in Canada will affect oil production in the coming months.
Simultaneously, Brazil’s Petrobras anticipates a new oil pricing reference from September, which will likely influence both offshore and onshore operations.
The CEO has stated that Petrobras is adjusting its five-year spending plan to align with lower oil prices, projected to be around $65 per barrel.
Outlook
“The prompt time spreads between Brent and WTI continue to signal a tighter market,” Sahdev said.
Overall, our view is that backwardation will continue to roll and it’s not time to stay short for long. The path to peace is likely to be non-linear.
Although forecasting the future of the intricate peace process between Ukraine and Russia remains exceptionally challenging, current indications suggest that oil prices are unlikely to plummet, and the flow of Russian energy will continue unimpeded.
Even with a substantial decrease in bullish NYMEX WTI crude net-long positions, indications of accumulation among commercials and a potential exhaustion of downward momentum are emerging.
It is probable that the underlying issues will be resolved without causing a collapse in oil prices, according to Rystad.
The trading world is likely to witness many unexpected trade flow shifts ahead like news of the export of diesel from India to China.
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