The core issue driving prices down is the overwhelming supply. On one hand, the United States, the world’s largest crude oil producer, continues its aggressive output under the Trump administration’s strategy to become the top global supplier of oil and gas. On the other hand, the OPEC+ cartel is actively unwinding previous production cuts to regain market share, which had been ceded. This action, combined with soaring US supply, fuels the sentiment of a persistent market surplus among energy stakeholders. The OPEC+ alliance, particularly its de facto leader Saudi Arabia, is focused on regaining market share lost to increased non-OPEC+ supply. Analysts anticipate Saudi Arabia may even reduce prices for its oil sold to Asia in order to remain competitive.
Geopolitics, meanwhile, remains volatile, primarily focused on US efforts to isolate Russia financially. President Trump is aggressively pressuring major oil consumers, specifically India and China, to halt Russian oil purchases to cripple Russia’s war machine. While the President projects optimism, these two Asian giants continue to accelerate their buying of discounted Russian energy.
A notable factor limiting overall global demand uncertainty this week was a modest breakthrough between the world’s two largest economies, the US and China. Markets found some relief after the two nations reached a fragile compromise regarding China’s export restrictions on rare earth materials and its refusal to buy US soybeans. However, broader tariff issues remain unresolved.
The overall assessment is that the Russian factor is unlikely to cause sustained concern for energy investors. The fundamental reality of ample supply and dwindling risks to oil flow suggests that crude prices are poised to drift lower in the coming months.
