Oil markets were stable recently, with Brent experiencing an increase of just under 0.5%. This was due to easing trade tensions between the US and the EU, as President Trump withdrew his tariff threat over Greenland.
The International Energy Agency (IEA) revised its oil demand growth forecast for 2026 from 860k barrels per day to 930k b/d, indicating a return to normal economic conditions and lower oil prices. Despite the adjustments, the IEA expects a substantial supply surplus to persist until 2026.
Market Developments
In related news, markets are observing several developments. Gold holds firm above $4,800, as traders anticipate postponed US PCE data. The GBP/JPY remains steady amidst fiscal risks in Japan, and US initial jobless claims increased to 200,000 last week.
Crypto markets witness modest gains with Bitcoin reaching slightly above $90,000. Ethereum remains around $3,000 amid high market volatility, while XRP shows small increases for the second day. Meanwhile, Axie Infinity records gains, with its price action driven by increased activity from large investors.
The easing of trade tensions has created a period of calm, but we should view this as a window to position for weakness. Despite a minor upward revision to demand forecasts, the market is still expected to face a significant supply surplus through 2026. This fundamental imbalance will likely reassert itself as the dominant price driver once the focus shifts from geopolitics.
We have seen this supply pressure building for months, especially looking back at the end of 2025. Non-OPEC+ production, particularly from the US, surged to record highs above 13.3 million barrels per day, adding to the global glut. Just last week, the EIA reported a surprise build in US crude inventories of 5.5 million barrels, confirming that supply continues to outpace immediate demand.
Outlook and Trading Strategy
The recent upgrade in demand growth to 930,000 barrels per day is positive, but it may not be enough to absorb the excess barrels. Recent data from China, for instance, showed its manufacturing PMI slipping to 49.7, indicating a slight contraction that could temper appetite for energy imports. This suggests that the demand-side support for prices might be more fragile than it appears.
Given this outlook, the current low volatility presents an opportunity for derivative traders. We see value in acquiring bearish positions, such as buying put options on Brent or WTI crude futures for the coming months. These strategies are relatively inexpensive right now and offer a way to capitalize on a potential price correction once the market’s attention returns to the persistent supply surplus.
