Oil struggles into September with oversupply risks rising
The WTI prompt-month contract closed down $0.59 to settle at $64.01/Bbl suffering its first monthly loss since April, as the market continues to grapple with the prospect of oversupply in the months ahead. US inventory draws and strong exports provided some support this week, yet broader concerns about sluggish demand and a looming glut continue to dictate sentiment. Against this backdrop, geopolitical tensions and shifting policy measures have added volatility but have not changed the underlying fundamentals.
The latest EIA data offered a glimpse of short-term support. Commercial crude stocks fell by a larger-than-expected figure of 2.4 MMBbls last week while exports surged nearly 300 MBbl/d to 3.77 MMBbl/d. In effect, the draw reflected strong export demand rather than a fundamental tightening of domestic supply.
At the same time, demand-side signals remain muted. The EIA highlighted that US transportation fuel consumption has yet to recover to pre-COVID levels, constrained by efficiency gains in vehicles and aircraft and by the growing role of biomass-based substitutes. Jet fuel demand growth, once a key driver in the post-pandemic period, is now slowing in 2025 and is expected to decelerate further into 2026. Retail gasoline markets reflect a same softer tone with pump prices averaging $3.15/gal ahead of Labor Day, 5% lower than last year, and the agency projects an additional 11% decline through December as crude weakens and refiners shift to lower-cost winter-grade gasoline.
Meanwhile, geopolitics continue to stir in the background. Ukraine intensified drone and missile strikes against Russian refineries this week, further disrupting product output. In parallel, Washington imposed a 50% levy on Indian imports to penalize New Delhi’s purchases of Russian crude, though Indian refiners have responded by stepping up US crude buying. These developments underscore the fluidity of global flows but, for now, have not meaningfully shifted the overall supply-demand balance.
This week’s developments reinforce the direction we outlined in last week’s market summary, when we formally shifted our crude outlook from neutral to bearish versus the forward curve. The EIA’s draws show that near-term balances can still tighten, particularly with strong exports and lower product stocks, but rising production, OPEC+ supply returns, and slowing demand growth point toward weaker conditions later this year. While geopolitics and product tightness may cushion immediate downside, the prevailing risks continue to tilt toward lower prices into 2026. AEGIS maintains a bearish market outlook.
Crude Oil Factors
Geopolitical Risk Premium. (Bullish, Mostly Priced In) President Trump is pushing for a summit between Vladimir Putin and Volodymyr Zelensky following a series of high-level talks. Vandana Hari of Vanda Insights said crude “may be in for a holding pattern,” noting that while the path to a resolution has opened, it could take time. A peace deal could eventually ease restrictions on Russian crude exports, though Moscow has largely maintained flows throughout the conflict.
Speculator Positioning (Bearish, Priced In) The latest CFTC data show that as of August 12, money managers reduced their net long in CME’s flagship NYMEX WTI contract to just 48,865 contracts, the smallest bullish position since April 2009. Meanwhile, trades of WTI done on the ICE exchange show money managers holding a net short of about 53,000 contracts. When the two venues are combined, overall positioning in WTI has slipped into net short territory for the first time on record.
OPEC Market Share War. (Bearish, Surprise) OPEC raised crude production by 360,000 bpd in June, its largest increase in four months, as Saudi Arabia led a push to reclaim market share despite weakening demand and rising global supplies. The Saudis, along with the UAE and Kuwait, ramped up both production and exports, signaling a strategic shift away from price defense and toward volume gains.
Oil/Product Inventories. (Bullish, Priced In) Crude inventories in the US remain low, although stocks have risen this year in-line with seasonal trends. Crude data is usually on a several-month lag. According to the July IEA report, OECD inventories have started to move higher. Global inventories are expected to increase throughout the year. Diesel inventories rose, but they’re still at the lowest seasonal level since 1996. According to Goldman Sachs, diesel-refining margins are likely to stay above long-run averages.
OPEC+ Quotas. (Bullish, Priced In) On June 2, OPEC+ announced its extension of 3.66 MMBbl/d cuts through December 2025. Additionally, the 2.2 MMBbl/d voluntary cuts from eight member countries will continue into Q3 2024 but will start to be reversed in October at a rate of 0.18 MMBbl/d per month. OPEC+ members agreed on September 5 to delay a planned gradual 2.2 MMBbl/d supply hike by two months, shifting the start to December. The group will add 0.19 MMBbl/d in December and 0.21 MMBbl/d from January onwards, with an option to adjust or pause these hikes depending on market conditions. The cartel also reaffirmed its compensation cuts of 0.2 MMBbl/d per month through November 2025, as members such as Iraq, Russia, and Kazakhstan have struggled to meet their original production quotas.
AEGIS notes that the global crude market would quickly build inventories without OPEC's support in reducing supply.
OPEC Unwind. (Bearish, Mostly Priced in) OPEC+ announced a 547 MBbl/d production quota increase for the month of September, completing the reversal of the group’s November 2023 supply cuts a full year ahead of schedule. The move brings the total unwind to approximately 2.5 MMBbl/d, including the 300 MBbl/d hike allocated to the UAE.
China Demand. (Bearish, Priced In) China's oil demand has been severely affected by a combination of economic weakness and electrification trends within the country. Continued weakness in China's real estate sector has led to slower economic growth. The Chinese government has responded with interest rate cuts and multiple stimulus packages. Electrification trends have also dampened oil demand growth, with the buildout of high-speed rail and LNG-powered trucks and busses impacting diesel demand. China is one of the most prolific adopters of electric vehicles, impacting gasoline demand. Some estimates show demand for transportation fuels in China peaking, but oil demand from China's petrochemical sector should continue for the next few decades.
USD (Bullish, Priced In) The US dollar index surged to multi-year highs toward the end of 2024. The dollar has since erased all post-election gains despite tariff fears being realized. Typically, a stronger dollar will have a negative impact on crude prices, while a weakening dollar will support prices.
Ukraine-Russia Resolution. (Bearish, Surprise) President Trump is pushing for a summit between Vladimir Putin and Volodymyr Zelensky following a series of high-level talks. Vandana Hari of Vanda Insights said crude “may be in for a holding pattern,” noting that while the path to a resolution has opened, it could take time. A peace deal could eventually ease restrictions on Russian crude exports, though Moscow has largely maintained flows throughout the conflict.
Trade War. (Bearish, Mostly Priced In) The EU and South Korea are both set to pay a 15% levy on imported good to the US, a similar deal to Japan. Brazil has been granted a seven day extension after the President said the major trading partner would pay a substantial 50% tariff rate. Trump said it would be difficult to reach a deal after Prime Minister Mark Carney anonunced that Canada would recognize the Palestinian state.
Projected Oversupply. (Bearish, Mostly Surprise) According to the EIA, global liquid fuels production will rise by 2.0 million b/d in 2H25 compared with 1H25, with OPEC+ and non-OPEC producers each accounting for about half of the increase. Gains from the United States, Brazil, Norway, Canada, and Guyana will match those from the producer group. Global demand is expected to climb by 1.6 million b/d over the same period, resulting in inventory builds accelerating by nearly 0.5 million b/d.
Trump/Iran/Venezuela. (Bullish, Surprise) The US government has let Chevron resume oil operations in Venezuela. Before losing their license to operate, the supermajor was producing 240 MBbl/d in Venezuela with most of the production going to refineries in the Gulf Coast.
Russian Supply. (Bullish, Surprise) Trump hes threatened secondary sanctions on any countries purchasing barrels from Russia if they do not reach a ceasefire deal with Ukraine in the coming days. He also expressed disapproval of India's large Russian crude purchases, stating that the country could face an unknown penalty for its actions.
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