Faites vos jeux. There is still time to play the tariff roulette. Although it remains as obscure as ever where the boule will ultimately stop, there is a growing belief that the US will, on average, impose import tariffs of between 15% and 20% on both major and minor trading partners. At least, this is the current assumption investors are basing their bets on, and views are split on whether it supports or hampers economic growth.

US equity markets edged out their sixth successive daily record closes as the impressive bull run continues. Global stocks were less convincing, and there will be a lot to ponder this week. Corporate earnings, interest rate decisions (with the FOMC meeting scheduled for tomorrow), and hard economic data (PCE figures due on Thursday) will all shape investor sentiment, along with the mother of all trade deals, the US-China stand-off. Current talks are expected to keep the hatchet buried for another 90 days, as the US-imposed August 12 deadline is now just two weeks away. Whether already existing agreements are deemed credible or not depends on one’s perspective; nonetheless, there is a perceptible sense of optimism that some clarity is emerging.

In addition to the tariff-induced buoyancy, another revised deadline has provided considerable support to oil prices. Displaying frustration with the lack of tangible progress in peace talks between Russia and Ukraine, the US President has shortened his ultimatum for the aggressor from 50 days to 10–12. The prevailing assumption is that, after this period, new sanctions, including measures targeting Russia’s energy sector, will be introduced. In the same breath, he warned Iran of further attacks on its nuclear facilities should the country resume its enrichment activities.

The geopolitical risk surrounding key oil-producing regions has therefore risen. Even the widely held consensus that OPEC+ will complete the full unwinding of its 2.2 mbpd voluntary cuts at the beginning of next month was not able to spoil yesterday’s bull party.

Brent Curve Supports IEA View

The yawning chasm in future oil balance projections between the IEA and OPEC is well-documented, and the literature on the topic is extensive. Views deviate on almost every front - demand, non-DoC supply, DoC production, DoC call, and global and OECD stock fluctuations. The most salient divergence lies in consumption figures. This gap, of course, is the alpha and the omega of all other discrepancies.

The updated prognoses, for example, show a difference of 1.45 mbpd in global oil demand estimates for 2025 and a much smaller cleavage of 470,000 bpd in non-DoC supply. When all other variables are entered into the equation, the outcome is an enormous difference in global and OECD oil inventories, making price forecasting a Sisyphean task.

Another intriguing aspect of the projections, as pointed out in this report a few months ago, is that stock data is reconciled and aligned retrospectively. The first time OPEC and the IEA both published their 2025 projections was in April 2024. By remaining consistent with the methodology, i.e., in future DoC production estimates, and arbitrarily assuming that 40% of global stock changes occur in OECD countries, one would have found back then that OPEC predicted oil inventories to be 2.415 billion barrels by Q2 2025, significantly contradicting the IEA’s prediction of 2.711 billion barrels. Fast forward 16 months, and this gap has narrowed to 21 million barrels, 2.771 billion barrels versus 2.792 billion barrels (May figures, to be precise). There is little doubt that further adjustments will occur as more historical data becomes available.

Past harmony and future dissent are clearly illustrated in the graph below, which also includes the quarterly average price of front-month ICE Brent. Quarterly OECD stock estimates align closely between Q1 2022 and Q1 2025, but the gulf begins to widen thereafter, when statistics are overtaken by forecasting, reaching nearly 500 million barrels by the end of next year, with the IEA being much more bearish on demand than OPEC.

Empirical evidence suggests that the differing views will prove unsustainable, and the schism will gradually close. Both forecasters will likely make concessions; however, when examining the inventory/oil price relationship, one cannot help but conclude that the current IEA estimate will prove more robust. There is a tangible inverse relationship between oil stocks and prices, and the current Brent curve through the end of 2026 implies that market participants are betting on rising, rather than plunging or even stagnating stockpiles.

The Brent market remains in backwardation until after 2026, but its extent becomes less pronounced further out. It flips into a slight contango after 2026, yet prices do not exceed the current front-month level. A variety of factors influence oil supply and demand, and their impact is little more than guesswork in today’s unpredictable investment climate. This guesswork currently points to a loosening oil balance toward the end of this year and into 2026. The present backwardation in short-dated contracts, which is the function of attractive refining margins, encourages financial demand as extra profit is realised by rolling length from one month to the next. When this structure begins to flatten, it will likely be accompanied by outright prices drifting lower and approaching the troughs seen in 2025.

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