Amena’s view
At the annual confab of oil traders in Singapore, the mood was overwhelmingly bearish. Those with skin in the game attending the Asia Pacific Petroleum Conference (APPEC) shared a common concern: a looming supply glut could send prices tumbling by 15%.
Despite this sentiment, Brent crude is holding above $65 a barrel and new long-term market forecasts show demand rising for decades and supply at risk of underinvestment. The International Energy Agency said this week that more investment is needed in exploration and production to keep up with demand. Reality is proving to be far more nuanced than the herd mentality suggests.
Since the beginning of the year, most oil analysts cautioned that the OPEC+ decision to boost output would flood the market. Not only did the group ignore these calls, it accelerated the reversal of previous cuts, bringing back 2.2 million barrels per day (bpd) over six months, instead of the original 18-month plan. The eight members of OPEC+ who were voluntarily restricting supply went further earlier this month and will now boost output by a further 1.65 million bpd in phases, starting in October. The move was a message that demand is not collapsing. But in case of change in market conditions the group also said they would be willing to pause or go back to cutting output.
Nowhere is the demand side of the equation clearer than in China. State buyers have quietly absorbed nearly 90% of the additional OPEC+ supply, channeling it into both strategic and commercial storage, which so far provides China a demand cover of around 75 days. The stock building comes amid trade tensions between the US and China, with energy security becoming even more important.
China plans to purchase 140 million barrels for storage between July 2025 and March 2026, according to people familiar with the matter, and will have an additional 200 million barrels of storage capacity ready by the end of 2026. The stockpiling and storage expansion will ensure that the buying spree continues, providing a cushion against oversupply that is, to some extent, decoupled from immediate price signals.
Beyond fundamentals, traders at APPEC repeatedly raised geopolitical risks, from US tariffs and sanctions to the unresolved wars in the Middle East and Ukraine. These risks have translated to a premium on oil prices and may lead to supply shortages. One trader told me: “No one can afford to express bearishness in this market, otherwise you’ll get burnt.”
So far, the dire forecasts for crude prices haven’t played out. OPEC+ is signaling strength, China is stockpiling aggressively, US shale production has plateaued, and geopolitical risks all suggest that the market is tighter than the herd assumes. Those betting heavily against oil may end up regretting it.
Amena Bakr is the Head of Middle East Energy & OPEC+ research at Kpler, an independent global commodities trade intelligence company.
Notable
- The consensus that oil, gas, and coal consumption would peak this decade is falling apart, and Bloomberg columnist Javier Blas warns that global temperatures could rise toward a “disastrous 3C” above pre-industrial averages.
- Oil prices may still fall to the low $50s per barrel this year as OPEC+ increases contribute to a surplus at the end of 2025, but lower investment in production already indicates that a recovery may begin in 2026, according to a Goldman Sachs report.