Despite the absence of a real surplus, oil prices are unlikely to surge. China has built massive strategic reserves and consistently sells from them when Brent crude moves above $70 per barrel. This acts as a ceiling on the market, creating a range-bound environment for prices in the $60s.

Despite healthy global oil demand, J.P. Morgan maintains a bearish outlook because supply is forecast to expand at three times the rate of demand. This oversupply creates such a large market imbalance that prices must fall to enforce production cuts and rebalance the market.

Contrary to bearish sentiment, oil demand has consistently exceeded expectations. The market's weakness stems from a supply glut, primarily from the Americas, which has outpaced demand growth by more than twofold, leading to a structural surplus and significant inventory builds.

The crude oil market is trapped in a recurring monthly pattern. For the first half of each month, the forward curve weakens on fears of a supply glut, nearly flipping into contango. Then, a sudden geopolitical shock mid-month causes the curve to snap back into pronounced backwardation, delaying the surplus.

Bearish forecasts for an oil surplus are wrong because they ignore seasonal demand within OPEC+ nations. Production increases will be consumed domestically for power generation during Ramadan, the Hajj pilgrimage, and summer cooling, preventing them from reaching the global market.

The 30-50 million barrels of Venezuelan oil the White House claims to be releasing is not new supply. It's largely oil that was already produced but couldn't be exported due to the U.S. blockade. Releasing it is more of a reversal of a self-inflicted disruption than an injection of fresh barrels into the market.

Despite his stated goal of lowering oil prices, President Trump's aggressive sanctions on Venezuela, Iran, and Russia have removed significant supply from the market. This creates logistical bottlenecks and "oil on water" buildups, effectively tightening the market and keeping prices higher than they would be otherwise.

Forecasters often miss that OPEC+ increases production based on demand for its own oil, not just overall global demand. Sanctions on rivals like Russia and Iran can boost demand for OPEC+ crude, prompting them to unwind cuts even when global demand growth seems weak.

Analysts misinterpret rising "oil on water" as a bearish sign. A country shifting exports to a more distant destination (e.g., Brazil to China instead of the US) increases the volume of oil in transit due to longer voyage times, but the actual available supply to the market can be declining.