Brent oil fell 2.2% this Tuesday and was trading at $61.9, very close to the lows of the year set in May, just after Donald Trump’s announcement of massive tariffs. The withdrawal or extension of almost all these trade barriers allowed oil to recover ground and contributed to the rise in the stock markets, but this week again the tariff risk punishes the energy market. Tensions between China and the United States are unleashing sales, also accelerating as the market prices an increasingly structural excess supply.
both due to the increase in pumping from countries outside the expanded version of the Organization of the Petroleum Exporting Countries (OPEC+) and due to . The US reference, the West Texas barrel, also drops sharply and is trading at $58, also close to the year’s lows.
Within the succession of threats and reprisals between Beijing and Washington, unleashed with China’s application of controls on the export of rare minerals, this Tuesday the Secretary of the Treasury declared that the measure “is a sign of how weak their economy is, and they want to drag everyone else down with them.” “If they want to stop the world economy, they will be the most affected,” he added.
The backdrop, however, is a strong imbalance between the crude oil that producers put on the market every day and that which is consumed, even when a large global player (China) buys in droves in order to increase its strategic reserves.
The IEA’s forecast points to an even greater surplus volume than it contemplated until now: there will be four million surpluses next year, an unprecedented figure and almost a fifth greater than what it expected last month. Largely due to the firmness with which the OPEC+ cartel is restoring production cut in previous years to try to rebalance the market. That policy of artificial supply scissors is history.
If this recent turnaround by the classic producers, led by Saudi Arabia and Russia, is not more noticeable in the price – the price has fallen, yes, but much less than what the fundamentals suggest – it is only because of China’s hoarding desire: the largest oil importer on the planet is absorbing around 90% of the world’s surplus to fill its own deposits. For what may be to come. However, this push by Beijing has a physical limit: the amount of oil that the Asian giant can store.
“In a context of lower demand growth and a rapid increase in crude oil supply, global oil balances have recorded a surplus of 1.9 million barrels per day since the beginning of the year,” highlights the energy arm of the Organization for Economic Cooperation and Development (OECD, the think tank of rich countries), in its latest monthly report, published this Tuesday. He also anticipates that as the significant volumes of crude oil in the water move ashore towards the main oil centers: “Reserves seem ready to increase.”
Global oil demand will rise by just 700,000 barrels a day this year and next, well below historical trends. In part, due to the tariff war started by the president of the United States, Donald Trump, which is clearly putting downward pressure on economic growth and, with it, also the demand for fuel.
There is, however, another powerful force destined to completely change the energy tables in the coming years and decades: the transition towards electric mobility, with gasoline and diesel consumption already beginning to fall in countries with a higher penetration rate of battery-powered cars. And it’s just the beginning.
On the supply side, and regardless of the new orientation of OPEC+, the most notable thing is the vigor with which the rest of the world’s producers are adding more and more barrels to the market. Brazil, the United States, Canada, Guyana and even Argentina will add 1.2 million barrels a day next year, 200,000 more than anticipated. Even when lower prices will drive the least efficient bidders out of the market (especially the big ones in and from the tar sands in North America), the pressure will still be there.
The only thing that could turn the tables would be a massive departure of Russian oil and its derivatives (especially diesel) from international markets. Either because of a new twist on Western sanctions, or because of the recurring Ukrainian attacks on their refineries. Geopolitical uncertainty remains, but the cards seem set.
