After a hectic few days, it appears that investors are still assessing and reassessing the potential consequences of the Middle East peace process, the ongoing attacks on Ukrainian and Russian oil installations, and the possibility of reigniting the trade war between the world’s two economic behemoths.

Starting with the last of these, it is clear to see that the US President enjoys, and uses to full effect, a privilege publicly traded companies do not have: the lack of regulatory oversight, aka control. Or to be more precise, he does have one, called Congress, but it appears rather ineffective. What might be considered an ostensibly or deliberately misleading statement from a CEO, or a market manipulation, is described as “softening the tone” in the case of a transactional US President. The shock that led to a sharp drop in equities and oil late Friday night, following reports of 100% import tariffs on China, quickly evaporated yesterday as the President now “wants to help China, not hurt it!!!”

Stocks regained more than half of Friday’s losses, but curiously, and perhaps ominously, gold powered through $4,100/ounce like a hot knife through butter. The takeaway, if there is one, is that equity markets have once again reined in the President, but further twists and turns must not be ruled out. For one, there are the mutual port fees that China and the US have started to charge each other, effective today.

Promising news came from the Middle East, as the release of Israeli and Palestinian hostages went as smoothly as could be expected, and humanitarian aid began to flow into Gaza. There is no denying this is a welcome development, achieved with the help of the US, but the hardest part, phase two of the peace plan, is yet to be implemented. There are so many potential hurdles, and possibly insurmountable obstacles, to achieving lasting peace that every positive step will continue to be met with very cautious optimism.

Perhaps this pragmatism, combined with the climbdown from belligerent trade rhetoric against China, helped oil recover from Friday’s losses. The ongoing reciprocal assaults on Ukrainian and Russian energy infrastructure have not gone unnoticed, nor has the 4% year-on-year rise in Chinese September crude oil imports, although those purchases did show a monthly decline.

Our market is caught between the devil of trade wars and the deep sea of potentially bullish geopolitical developments. Yet, the weakening of the crude oil structures implies that the long-awaited build in global oil inventories is gradually materialising. Contango appears on the WTI curve from February 2026 onwards, and a month later on Brent. Notwithstanding ‘unanalysable’ market conditions with a number of fast-moving parts, this plausibly puts the immediate risk to the downside.

Re-affirming Its View

The second organisation to publish its updated monthly findings, OPEC has seen no reason to significantly alter its prognosis from earlier months. (The IEA will release its monthly report around the time you read this note.) Analysts and researchers at the Vienna headquarters still expect a solid economic foundation on which their optimistic demand forecasts are based. Global economic growth projections remain unchanged: 3.0% for 2025 and 3.1% for 2026. The world’s pivotal economies are forecast to perform as follows this year and next: the US, 1.8% and 2.1%; China, 4.8% and 4.5%; and India, 6.5% for both years. All these estimates remain unchanged from September.

When there is no reason to revise economic growth, there is no basis to significantly change oil demand estimates either. OPEC devotes its Feature Article to reviewing global oil demand trends. The projected 1.3 mbpd increase in global consumption in 2025 is chiefly attributed to the impressive performance of non-OECD countries. This group will account for an increase of 1.2 mbpd, driven primarily by the “Other Asia” category, while China is expected to demand 180,000 bpd more oil this year than in 2024.

Breaking down this growth by refined products, transportation fuels are clearly in the driving seat. Jet/kerosene consumption is forecast to rise by 380,000 bpd; diesel demand by 300,000 bpd; and gasoline use by 280,000 bpd. LPG demand is expected to climb by 330,000 bpd, and naphtha by 180,000 bpd. The final piece of the demand puzzle is a contraction of 120,000 bpd in heavy distillates. These demand estimates point to a stuttering transition from oil to renewable energy.

Sanguine demand data, nonetheless, must be weighed against supply or production expectations to arrive at a picture of the global oil balance. For this year, producers outside the OPEC+ alliance are expected to pump at a rate of 54 mbpd, with OPEC+ other liquids at 8.65 mbpd. This leaves a gap of 42.50 mbpd relative to the total demand estimate of 105.15 mbpd. In other words, this represents the call on OPEC+ oil. In the first three quarters of the year, the group produced 41.57 mbpd. If you project fourth-quarter production of 43.6 mbpd, you end up with an annual average of 42.08 mbpd, implying a global stock drawdown of 430,000 bpd. The last quarter of the year is set to see inventories deplete at a rate of 600,000 bpd.

In 2026, global oil demand is forecast to expand by 1.38 mbpd. Non-DoC supply and DoC other liquids are expected to lag, with combined growth of 780,000 bpd, leaving the call on OPEC+ oil to rise from 42.50 mbpd in 2025 to 43.10 mbpd in 2026. Bullish, isn’t it? Not necessarily. If you believe that the effort to keep regaining market share will continue, and you estimate OPEC+ production to average 43.65 mbpd, this would result in an annual stock build of 550,000 bpd. (The group’s output has already increased from 40.64 mbpd in January to 43.04 mbpd in September, according to secondary sources, with plenty of spare capacity left to raise production further.) In any case, OPEC+ meetings and the alliance’s output strategy will undeniably remain among the defining factors in oil price formation in the coming months and into next year.

If supply exceeds demand, stocks will grow and vice versa. Because of widely diverging views, future estimates are anything but aligned. Compare the latest EIA and OPEC data for the second half of 2025: the former expects OECD inventories to average 2.906 billion bbls for the period, while the latter projects 2.765 billion. This is a yawning chasm, which certainly contributes to oil price volatility. There is, however, a remarkable degree of agreement on both the distant and the very recent past. The EIA estimates OECD inventories at 2.758 billion bbls for the first half of 2025, compared with OPEC’s aftercast of 2.769 billion. Note that this gap of a mere 11 million bbls was as wide as 220 million bbls in June last year—when the EIA put it at 2.693 billion bbls and OPEC at 2.472 billion. It is tempting to conclude that OPEC made the more significant adjustment, but it must be noted that uncertainty surrounding the group’s output level remains the main source of difference. We can only reiterate the perspective outlined earlier: those who get the supply figures right will have the most reliable estimate of the future global oil balance.

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