As we close the first half of 2025, oil markets are emerging from a narrative fog that obscured
true fundamentals. The early-year consensus was starkly bearish: vast spare capacity, surging
non-OPEC supply, and weak demand. But as we enter Q3, that storyline has unraveled. Spare
capacity, once cited at 6 million barrels per day, was largely fictional, composed of voluntary
OPEC+ cuts that were never fully deliverable. Demand, meanwhile, has quietly outperformed
and the expected flood of non-OPEC supply has turned into a trickle.
U.S. production has plateaued. Brazil and Guyana, while expanding, cannot shoulder global
balance shifts. This underwhelming supply response, alongside stronger-than-expected
demand, has preserved market tightness. Backwardation across the curve confirms this: the
market is not pricing in oversupply.
The World Oil Outlook’s forecast of 123 million barrels per day by 2050 still stands, and nearterm
demand remains anchored around a 1.3 million bpd annual growth rate, consistent with
long-term trends. Yes, China’s oil demand growth has flattened, but this may ironically serve
as a stabilizing force, preventing the market from overheating. The real inflection point may be
in slowing non-OPEC+ growth, particularly in the U.S., where production gains have shrunk
from 1.6 million bpd in 2023 to near-zero in 2025.
Looking ahead, the seasonal cycle is reasserting itself. Q3 is expected to be the tightest quarter
driven by summer demand, while Q1 of 2026 will likely see a moderate surplus, not a disruptive
one, but a healthy inventory rebuild from low base levels. This offers OPEC+ breathing room to
recalibrate quotas and address market structure confusion.
In sum, the short-to-medium term oil demand outlook is not one of collapse, but recalibration.
The fundamentals are reasserting themselves, and the noise of fictional spare capacity is
fading. If macroeconomic risks, particularly trade tariffs, can be managed, the market may
soon rediscover a firmer floor above $70.