It’s like a slow-moving train wreck. Unlike previous oil bear markets where prices responded viciously to the downside, this one is slow-moving in nature.
The market had ample time to adjust prices down since Liberation Day in April. And unlike the stock market which roared back to an all-time high, oil prices never managed to regain the ~$70/bbl area.
OPEC+ was the key culprit for this with the Saudis announcing the reduction in voluntary cuts on the same day as Trump’s tariffs.
However, thanks to the well-telegraphed voluntary cut reduction, OPEC+ has managed to increase production baselines by ~2.2 million barrels per day since April without driving oil prices into the $40s. As we wrote at the time, the OPEC+ voluntary production cut wasn’t a real cut, but a Saudi cut. And with the Saudis now producing ~10 million b/d, the oil market doesn’t have to wait long before the optimal spare capacity runs out.
But as we transition into that period of low spare capacity, we are now watching the most widely anticipated oil glut quarters play out in real-time.
In this article, I will attempt to answer the following questions:
What will that surplus be, and how will global oil inventories absorb it?
How low will oil prices go?
What happens to energy stocks?