Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
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Crude oil supported by US inventory decline, robust demand, and weak positioning
Ole Hansen
Head of Commodity Strategy
Key takeaways:
- WTI and Brent remain range-bound, supported by U.S. stock draws but capped by OPEC+ supply growth
- Russia–Ukraine peace efforts and U.S. pressure on India’s Russian imports add policy uncertainty
- OPEC+ supply increase of ~2.5 mb/d heightens risk of oversupply into Q4 and 2026
- Positioning extremes and refinery demand may trigger short-covering rallies off current support
Crude oil remains trapped in relatively tight ranges, with WTI finding support around USD 62 and Brent near USD 65. The market continues to weigh a mix of bullish and bearish drivers that, which together with thin summer liquidity, are keeping prices boxed in while traders search or wait for the next decisive catalyst.
On the supportive side, the latest weekly EIA report showed a bigger-than-expected 6 million barrel draw in U.S. crude inventories, the largest since June. The reduction was driven by a combination of robust refinery runs, now operating at the highest seasonal level since 2019 – and a pick-up in exports, which rose to an April high of 4.38 million barrels day. This combination highlights underlying demand strength in refined products, especially jet fuel which also reached a four-year seasonal high at 1.9 million barrels a day. These developments together with lingering doubts about a successful adoption of a Russia-Ukraine ceasefire have provided a near-term price floor.
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.
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The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..
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