Crude oil supported by US inventory decline, robust demand, and weak positioning

Another supportive element stems from geopolitics, specifically Washington’s ongoing efforts to curb India’s imports of Russian crude and refined products. India has become one of Moscow’s largest energy customers since 2022, and any material reduction in these flows would tighten balances and support prices. While Russia has pushed back, suggesting India will maintain its current buying levels, the issue remains a potential source of price support. 

At the same time, downside risks continue to dominate the medium-term outlook. OPEC+ is in the process of adding close to 2.5 million barrels per day of supply this year, spread across eight members. This unwind of previous voluntary cuts comes at a time when demand growth is slowing. Both the IEA and other forecasters have flagged the risk of oversupply into Q4 and, more importantly, into 2026. However, whether it will reach record levels as predicted by the IEA remains doubtful as high-cost producers and perhaps even the involved OPEC+ members may lower production should prices fall much below current levels.

In the short-term, the focus remains firmly on US-brokered peace efforts between Russia and Ukraine with recent price weakness being driven by an assumption that a peace deal could eventually ease sanctions on Russia and restore supply channels. The reality is more complicated, with any easing of sanctions likely to be gradual at best, but headline sensitivity reigns and prices will respond to the ebb and flow of news. In addition, from a demand perspective the macroeconomic outlook remains key, and traders will be watching incoming data and central bank action from the major consumers of energy, led by the U.S. and China.

Beyond these fundamental drivers, it is also worth watching speculative positions held by managed money accounts - or speculators as they are often called - in the major futures contracts. Especially their recent positioning in WTI, where the NYMEX WTI last week collapsed to a 19-year low, and when combined with ICE WTI, a net short position emerged for the first time on record. This creates the conditions for short-covering rallies, particularly if support levels continue to hold and inventory draws persist. It helps explain why downside breaks have been limited despite the constant talk of surplus risk ahead.

Altogether, crude oil is balanced between near-term support from strong refining demand, exports and low speculative length, and medium-term pressure from OPEC+ supply growth and slowing demand expectations, and not least geopolitical developments. With Brent anchored around USD 65 and WTI near USD 62, the market seems unwilling for now to chase a breakout in either direction.