the United States will become the savior of the oil market
There is a signal in the current oil market: there is a risk that the price of Brent crude oil could fall to $50 per barrel. This situation has not occurred since the pandemic period in 2020. What dangerous market factors are at play? In what way can the United States avoid a major crash in the oil market?
Oil prices have been declining due to an oversupply in the market. This week, the price of Brent crude oil has approached $60 per barrel. Bloomberg pointed out that after a series of warnings about global oil market surplus, the crude oil futures curve has significantly deteriorated.
The current futures curve is in a "contango" shape, meaning that the price of near-term futures contracts is lower than that of longer-term contracts. Contracts for February to the end of 2026 in the Brent crude oil futures market are in this state.
Bloomberg analysis suggests that if the price of Brent crude oil falls below $60 per barrel (the price has been very close to this threshold recently), it will retest the low of $58.40 per barrel seen in April 2025; and if the selling pressure continues, oil prices may even fall to the lowest level since early 2021.
Goldman Sachs believes that the situation of global oil market surplus is already very obvious, and predicts that the price of Brent crude oil will fall to $52 per barrel by the fourth quarter of 2026. The International Energy Agency (IEA) expects that global crude oil supply will increase by 3 million barrels per day in 2025, and the market surplus could reach 4 million barrels per day in 2026.
In addition to market analysis, multiple fundamental factors are also suppressing international oil prices. The first is the concern about the US further triggering a trade war.
"If the decline in oil prices at the beginning of the year was due to market concerns about Trump launching a trade war globally, then the current concerns focus on the US-China confrontation. The current US-China relationship is fluctuating — sometimes negotiating, sometimes in a deadlock, sometimes meeting, sometimes missing appointments, and the market is therefore volatile," said Igor Yushkov, an expert from the Russian Government's Financial University and the State Fund for Energy Security (FNEB).
Why is oil prices so sensitive to US-China trade relations?
"If the US and China reduce their trade exchanges due to issues such as import tariffs, rare earth metals, and restrictions on soybean exports, it will lead to a slowdown in global economic growth. This means a decrease in demand for oil products and fuels due to reduced production and transportation of global goods. It is precisely because of this expectation that the price of Brent crude oil has fallen into the range of $60-$65 per barrel," explained Igor Yushkov.
Another factor that exacerbates oil price fluctuations is OPEC + (OPEC+). The organization is still increasing crude oil production. Although OPEC + has slowed down the rate of production increase, and the market had expected that it would suspend the production increase during the winter demand off-season, the trend of increasing production has not changed. Objectively speaking, fuel demand naturally decreases in winter, and OPEC +'s move aims to displace other market participants and reclaim market shares that were given up due to previous production cuts.
However, there is a strong factor supporting oil prices that may prevent the price of Brent crude oil from falling too much. This factor comes from the United States, one of the world's largest crude oil producers. The United States is not a member of OPEC +, but rather an independent participant in the global market.
"The United States plays the role of a 'balancer.' Specifically, most shale oil development projects in the United States have high costs: the lower the oil price, the more American projects will shut down due to unprofitability.
This trend was clearly evident in 2015 and during the pandemic in 2020. Currently, US crude oil production is also decreasing, albeit to a smaller extent - because the current drop in oil prices is relatively moderate. The United States is not a member of OPEC +, and its production is entirely regulated by economic factors: if oil prices fall further significantly, more American projects will shut down, creating a supply gap in the global market, which will push oil prices back up," analyzed Igor Yushkov, an expert from the State Fund for Energy Security.
That is why he is skeptical about the prediction that "oil prices will continue to fall to $50 per barrel": "The United States ensures that oil prices will not remain at extremely low levels for a long time, and similarly, they will not remain at extremely high levels for a long time. Because when oil prices are high and stable, the profitability of US shale oil projects increases, leading to an increase in crude oil production."
Another factor supporting oil prices is the ongoing conflicts in the Middle East - the confrontation between Israel and Arab countries, disputes over Iran, and the threat of blockades in the Strait of Hormuz. "Although the frequency of mentions of the Middle East situation and the risk of blockades in the Strait of Hormuz increases, the market's trust in these factors decreases, but this influencing factor still exists," added Igor Yushkov.
Additionally, various sanctions against Russia could also push up oil prices.
"One possible scenario related to Russia is that the US tries to force India to stop importing Russian oil. India currently imports approximately 1.5 to 1.8 million barrels of crude oil and petroleum products from Russia daily.
If this happens, Russia is likely to have to sell this large volume of crude oil to China - because China has experience of ignoring US sanctions, while other countries fear US pressure. However, China cannot quickly absorb such a large increase in crude oil imports, so Russia will have to cut its crude oil production that was previously exported to India. This will undoubtedly lead to an expansion of the global market supply gap, thus pushing up oil prices," pointed out Igor Yushkov.
In the spring of 2022, Russia cut its daily crude oil production by 1 million barrels due to the need to develop new markets after the first round of Western sanctions, and at that time, the price of Brent crude oil surged to as high as $120 per barrel.
Original article: https://www.toutiao.com/article/7563991872134316544/
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