The oil market came under further pressure yesterday, settling under US$66/bbl for the first time since early June. Sentiment was bearish following releases from the International Energy Agency (IEA) and Energy Information Administration (EIA). Yet at the same time, hopes are high that Friday’s meeting between Presidents Putin and Trump might remove much of the sanction risk hanging over the market.
This might be a bit premature, with Trump threatening severe consequences if Putin fails to agree to a ceasefire. Clearly, there’s upside risk for the market if little progress is made. This could have Trump extending secondary tariffs on other buyers of Russian energy. The expected oil surplus through the latter part of this year and 2026, combined with OPEC spare capacity, means that the market should be able to manage the impact of secondary tariffs on India. But things become more difficult if we see secondary tariffs on other key buyers of Russian crude oil, including China and Turkey.
The IEA monthly oil market report was largely bearish, with the agency expecting large inventory builds towards the end of this year and through 2026. The IEA forecasts that global oil demand will grow by 680k b/d this year and 700k b/d in 2026. Global oil supply is forecast to grow by 2.5m b/d in 2025 and 1.9m b/d in 2026. Supply expectations were revised higher because of the unwinding of cuts seen from OPEC+. The IEA numbers paint a bearish picture, but the agency also highlighted potential risks around Russian and Iranian supply due to the possibility of additional sanctions.
The weekly EIA inventory report was also moderately bearish, with US crude oil inventories increasing by 3.04m barrels over the last week, more than the 1.5m barrel build the American Petroleum Institute (API) reported the previous day. The increase was driven by stronger imports, which grew by 958k b/d week on week. For refined products, gasoline stocks fell by 792k barrels, as expected, through the summer months. Total gasoline inventories remain roughly in line with the 5-year average. There was also some further relief for distillate stocks, which increased by 714k barrels. While distillate inventories have increased by 11m barrels since early July, stocks are still fairly tight. This should continue to offer relative support to middle distillates.
Turning to European natural gas, investment funds reduced their net long in TTF by 17TWh to 105TWh over the last reporting week. This is the smallest position funds have held in the Title Transfer Facility (TTF) since late May. Speculators are likely reducing risk heading into the Trump-Putin summit amid uncertainty around whether we’ll see a ceasefire or stricter sanctions. A ceasefire would likely put some immediate downward pressure on prices and lead to increased noise around a restart of some Russian pipeline flows into Europe, as we saw earlier in the year. However, we still believe a restart of pipeline flows remains very unlikely.
Despite EU allowances (EUAs) trading in a fairly steady manner in recent weeks, investment funds continue to buy EUAs, increasing their net long 8.1k contracts to 28.9k contracts. This marks the third consecutive week of increases and also the largest position held since March. While the EUA market is well supplied this year, which should cap prices, supply is set to fall considerably in 2026, leaving the market tighter.