Oversupply Dominates Market Sentiment for Oil Prices

Oil – Fundamental Analysis

Oil prices moved out of their consolidation period this week both to the upside and downside, resulting in a $3.15/bl. Hi/Lo range for the week. Mixed market signals once again created the pricing volatility as the end of the US government shutdown was a positive development while bearish outlooks and an unexpectedly large inventory gain added pressure to prices. An attack on a key Black Sea port provided a more bullish tone to end the week. WTI prices had their weekly high of $61.30/bl. on Tuesday and fell to a low of $58.15 by Thursday but managed to stay above the critical $60.00/bl. mark.  Brent followed a similar pattern, hitting its high of $65.30/bl. on Tuesday with its weekly low of $62.35 on Thursday as well. Both grades settled higher vs. last week while the WTI/Brent spread has widened to ($4.35). Prices are down (15%) year-to-date on views of an over-supplied market.

Prices dipped Wednesday as both the IEA and OPEC are now emphasizing a surplus for the 3^rd & 4^th quarters of this year which will spill into next year. OPEC would later indicate a more balanced position emerging during 2026. But, by week’s end, prices moved higher as an attack by Ukrainian drones on a major Russian oil export hub impacted both Russian and Kazakhstani exports. And Russia’s Lukoil declared a force majeure on shipments from its 75% ownership in the large West Qurna field in Iraq, a sign to some that the US sanctions are having an impact on the company’s international operations. (U.S. private equity firm Carlyle is reportedly considering buying the foreign assets of Lukoil after the failed Guvnor deal.) Industrial growth in China last month slowed to its lowest pace in more than a year. The data, coupled with the filling of its oil reserves throughout the year, is bearish for demand for the world’s No. 1 importer of crude.

The U.S. Department of Energy has purchased 900k bl. of crude for the SPR from Trafigura and Energy Transfer at a reported price of $62.00/bl.

Layoff announcements continue as data from the US Labor Department has been absent during the shutdown. Verizon will cut up to 20,000 jobs as subscriber numbers have fallen for the last (3) quarters. Meanwhile, a private employment analysis company indicated US employers announced more than 150,000 layoffs last month.

The Energy Information Administration’s Weekly Petroleum Status Report indicated that commercial crude oil inventories for last week increased by +6.4 million bl. to a total of 427.5 bl. million and -4% below the 5-year average. The API forecasted a +1.3 million bl. gain while market analysts forecasted a +400k increase. US refinery utilization increased to 89.4% from 86.0%, representing a change in inputs of +720k to 16.0 million bpd. Gasoline demand was +155k bld. to 9.0 million bld. Total motor gasoline stocks fell -0.945 million bl. to 205 million bl. and are now -4% below the 5-year average. Distillates decreased -640k bl. to 111 million Bbl. and are now at -8% below the 5-year average. Inventory at the key Cushing, OK hub changed -350k million Bbl. to 22.5 million Bbl. or 29% of capacity. The SPR was +800k bbl. to 410 million bbl. Imports of crude oil were -700k bpd. to 5.2 million Bbld. vs. 5.9 the prior week while exports were 2.8 million bpd. vs. 4.4 the prior week. Exports of petroleum products were 7.2 million bpd. last week vs. 7.0 the prior week. Total US oil production hit a new record at 13.9 million bld. vs. 13.4 last year at this time.

AAA’s average US retail gasoline prices at the pump were most recently reported as steady at $3.08/gal., flat vs. last week, +$0.004/gal. from last month and -$0.004/gal. less than a year ago.

Two separate private employment reports indicated significant layoffs last month while Wall Street had its worse day in a month on Thursday as some analysts see an over-investment in AI datacenters as eventually leading to a “bubble” and tech stocks were lower. Despite a rebound Friday, the Dow and S&P indexes were lower week-on-week while the NASDAQ was slightly higher. The USD is lower which is helping to support oil prices.