Analysts create a false “manufactured surplus” by misinterpreting data. They incorrectly count US Strategic Petroleum Reserve additions as market supply and fail to recognize China's massive inventory buildup as a strategic reserve for war or sanctions, not commercial oversupply.

The oil market's lack of reaction to the events in Venezuela demonstrates a key principle: short-to-medium term prices are driven by current production and delivery capacity, not the theoretical size of underground reserves that may take years and billions to develop.

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.

Despite bullish fundamentals like low inventories and backwardated curves, oil prices remain suppressed. This disconnect is fueled by algorithmic trading systems that react to sentiment rather than physical market data, creating a false narrative of a supply glut.

Despite market fears over Iran and Russian sanctions, J.P. Morgan believes no real supply disruption will occur. The White House's focus on midterm elections will prevent escalations that impact oil supply, and Russia can easily sell its crude at a discount, leading to a surplus.

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.

EM local markets have surprisingly not reacted to a nearly 20% surge in oil prices. Analysts believe investors are dismissing the rally as either a temporary geopolitical premium or, more importantly, a consequence of strong global demand. This latter interpretation makes the price increase less concerning for oil-importing nations.

Despite heightened U.S.-Iran tensions, oil prices show only a minor risk premium (~$2). The market believes an oversupplied global market, coupled with a U.S. preference for surgical strikes that avoid energy infrastructure, will prevent a major supply disruption.