Markets calmed as 10-year Treasury yields dipped below 4%, with labor data guiding future policy. The modest rate cut signaled alignment with easing pressures like lower gasoline prices and steady demand, reinforcing stability without materially changing U.S. economic momentum amid political calls for deeper easing.
Why are oil prices remaining firm despite headlines of surpluses?
Apparent oversupply is exaggerated as shipping data show only modest increases in supply so far, while demand – especially Chinese stock-building – remains a balancing force. China’s stock-building is difficult to quantify, with SPR utilization currently estimated at 55-60%. Unlike OECD stock movements, China’s commercial vs. strategic builds are smaller and more opaque, making them harder for markets to track. Yet especially at moderate price levels, China’s appetite provides consistent underlying demand.
Is OPEC’s current strategy about launching a price war against U.S. shale?
It’s more about testing the reality of spare capacity among members. Stalled production growth suggests baseline revisions may be required, challenging assumptions about future supply resilience. Iraq is often cited as holding 1–1.5 million b/d of spare capacity, but political turmoil, infrastructure bottlenecks, and Basra congestion make such volumes unrealistic to deliver quickly. The gap between theoretical capacity and actual flows remains critical. The key market signal lies in the curve shape: backwardation reflects that every barrel is being absorbed at current prices. If backwardation steepens, it indicates supply is not backing up, contradicting oversupply forecasts for late 2025 or early 2026.