While markets focus on AI's energy demand, the real risk is overinvestment in compute capacity. Similar to the shale boom, engineering breakthroughs will likely create a glut of AI compute, crushing tech investor returns, while the oil sector suffers from chronic underinvestment.

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.

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.

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 forecasts of massive energy demand growth from AI data centers, forward power curves are flat and natural gas futures are downward sloping. This suggests that sophisticated energy traders do not believe the bullish demand narrative and are not pricing in a future supply crunch.

A potential price collapse will be averted by the market's own circular logic. Sub-$60 prices will stimulate an extra 500,000 barrels per day of demand from price-sensitive regions while simultaneously forcing high-cost non-OPEC producers to shut down production, creating a natural market equilibrium.

Lyft's CEO describes a post-earnings phenomenon where algorithmic trading bots react to initial data, causing stock volatility. Then, other bots write news headlines explaining the stock move, creating a narrative based on the reaction itself. This feedback loop means market sentiment can become detached from the fundamental news that triggered it.