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.
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.
US sanctions on Russian LNG facilities are not primarily about punishing Russia for Ukraine, but are a strategic move in a global "LNG war." The US is using LNG as a tool of foreign policy and national security, meaning these sanctions are unlikely to be lifted even with a peace deal.
A peaceful resolution in Ukraine would likely be bullish for oil. Russia would need to repair its refineries, increasing its domestic demand for crude oil. This internal consumption would reduce the amount of crude available for export, tightening the global market and pushing prices up.
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.
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.
The primary force preventing a collapse of the Iranian regime isn't its own strength, but fear among its neighbors. Countries like Turkey and Pakistan worry a collapse would lead to a massive refugee crisis and empower separatist movements on their borders, creating a strong regional bias for stability.
The constraint on US shale isn't just production volume; it's a "refining wall." US refineries lack the capacity to process additional light sweet crude, forcing it to be exported. This creates a demand-side peak for this specific crude type within the US, independent of geological supply limits.
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.
The return of Venezuelan oil is not bearish. It will take three years to add 1 million barrels per day (bpd), while global demand growth and natural decline rates will require 15 million bpd of new supply. Furthermore, investment in Venezuela will be diverted from other projects, negating the net supply increase.