Oil prices edged lower yesterday with ICE Brent settling 0.9% lower on the day amid concerns over tariffs, with the 1 August deadline fast approaching. Meanwhile, expectations that the market will move into a large surplus later in the year are generating additional headwinds for the market, ING’s commodity experts Ewa Manthey and Warren Patterson note.
Oil market is going to be in a large surplus in 4Q25
“However, one must ask whether the large surplus the market expected in the fourth quarter will materialise. While our oil balance indicates that the oil market will be in a large surplus in 4Q25, the ICE Brent forward curve tells a slightly different story. If we cast our minds back 2 months, the forward curve had an interesting shape. It was in backwardation through until the November 2025 contract and then in contango from that point on. This reflected expectations for a surplus market from the fourth quarter onwards.”
“Fast forward to today, and the shape of the forward curve has changed quite drastically. It’s in backwardation into early next year, then essentially flat for a large part of 2026, before moving into a shallow contango through 2027. The forward curve is not screaming that there will be a large surplus of the kind our balance sheet and many others show. The Dec-25 – Dec-26 spread also highlights this. The spread is moving from a contango of more than US$1.80/bbl in early May to a backwardation of around US$0.65/bbl currently. While we believe the surplus will still hit the market, relatively low inventories offer some support not just to timespreads, but also the flat price.”
“Numbers overnight from the American Petroleum Institute show that US crude oil inventories fell by 577k barrels over the week, while crude stocks at the WTI delivery hub, Cushing, increased by 314k barrels. Gasoline inventories fell by 1.2m barrels as we move through the summer months, a period of seasonally stronger demand. Distillate stocks increased by 3.5m barrels. This will offer some relief to the middle distillate market, which has been looking increasingly tight. The more widely followed inventory report from the Energy Information Administration will be released later today.”
