The euphoria seen in stock markets once again fails to migrate influence into our market and oil prices languish in the shadow of competing drivers and a resigned feeling of ‘what next?’ The stock market gorges on its success with gargantuan self-investment, and OpenAI is once again the talk of the town. Last week, markets were left agog at the Nvidia $100 billion investment into OpenAI, but yesterday, OpenAI in turn reached a deal to buy up to 10 percent of AMD in order to secure the chip capability to rollout further extensions of its AI ambitions. As much as us oily types smell a self-serving bubble, we are quietly envious and wish there was just a smidgen of such over confidence in any part of our extremely uncertain market. 

We touch on OPEC below, but its decision to only return a smaller number of shuttered barrels for November might have stopped another poke to year-to-date lows, but it has not arrested the daily grind. There is no end in sight of the war in Ukraine, and there is no sign of sanctions be they primary, secondary or ‘z-list’ being deployed against Russia. On the second anniversary of the atrocity in Israel, its retribution seems to know no bounds and while the aggression in the convening years has been numbed in the psyche of risk takers, it can never be truly ignored. Staying with a war theme, can the world once again expect US bombers over Iran after France, Germany and the UK (E3) triggered the so-called “snapback” mechanism to reimpose UN sanctions on Tehran over its nuclear programme? 

China looks set to continue in its strategic build of oil. According to Reuters analysis, extra storage of some 169mb is being constructed in 2025/2026, giving at least the initial impression on how the biggest importer of foreign oil stuffs does not think ‘peak oil’ is arriving anytime soon. Yet the narrative of current oversupply and a future of increasing positive balances haunts a world that is struggling to find any sort of industrial or manufacturing highlight. The current stasis, and no discernible sentiment breaker means the propensity for short-term positioning with a negative bias is likely to be the correct one for some time yet.

Sometimes, less is more

The recent floating of an idea, via sources, through the medium of the electronic press on how OPEC+ were considering adding another 500kbpd in oil supply to the market has proved somewhat successful. Gauging the performance of the complex last week, and to be clear it was not just the supply rumour that caused a contract-wide flunk, such an enormous amount of potential new oil hitting the market was greeted poorly indeed by nasty price actions. Although M1 RBOB futures’ achievement of a fresh year-to-date low is no real great loss in terms of structural support, the shying away of Heating Oil and Gasoil in such dramatic terms undermines the very reason on which the demi-renaissance had been built. Given the price action, the cartel and friends saw fit to exercise its public optionality and hence the lighter return of 137kbpd production, giving a reprieve to the downward grinding price action.

The driving force behind OPEC’s newfound policy of sacrificing price against regaining market share was always eventually going to bring a constant narrative of ‘glut’. And so it has proven. A swathe of banks, be they of Wall Street or beyond have quickly lined up in succession to cut not only 2025 demand forecasts, but also for that of 2026 citing oversupply. Such a policy of wresting back not just customers, but relevance too, has been arguably authored by Saudi Arabia. It would appear any confidence the Kingdom might have in how the market would continue to easily digest the almost monthly higher returns of shuttered cartel oil has for the time being has been put aside. Evidence to which lies not just in how the weekend saw OPEC+ announce just a smaller production increase, but by yesterday’s Saudi cut of many of its OSPs globally. Barrels designated for Northwest Europe and the Mediterranean saw their price labels slashed by $1.20/barrel, and the little crude which is North America bound by $0.50/barrel. Neither of the competitive adjustment should come as much of surprise, after all, the Atlantic Basin is currently well fed by North Sea, West African and US oil. Additionally, and a writing on the wall moment, Saudi Aramco kept its most import grade of Arab Light into Asia unchanged while most analysts had forecasted an increase of $0.30/barrel. Demand in Asia may be outstripping that of all other trading arenas, but its thirst does not equate to paying uncompetitive price increases when China and India are easily able to source many different alternatives even if Russia’s supply to the region is ignored. 

The decision makers of Saudi are canny operators and the wider macro influences would not have escaped them. The global economic slowdown may not be a recession, but a cursory glance at GDPs do not offer a chart of practiced growth. The political uncertainty that unravels confidence in France is just an election away in many other countries and when the damage of tariffs is put in the pot of consideration alongside the extraordinary sight of the US government being shut down, the bigwigs of Riyadh, rightly, have adjusted the flood of returning oil to an ooze and priced it accordingly. The oil market is in no mood to receive another half-million barrels of feedstock in such short order but be assured, check in again in a few or several months’ time and that which has been furloughed for now will definitely have been eased in and only at times when the market is judged as equipped to absorb it.

Overnight Pricing