Oil’s biggest threat may now be the return of supply before demand recovers.
That’s what Terri-Leigh Bennett, Chief Operating Officer of CMS Prime, said in an oil market analysis sent to Rigzone on Thursday.
“Wednesday’s U.S. figures added demand context, but petroleum inventories provided the more consequential signal,” Bennett said.
“Mortgage applications increased 6.2 percent following a 1.2 percent decline, while the mortgage market index rose to 204.6 from 192.6 and purchase index to 141.2 from 131.4,” Bennett added.
“Refinancing activity improved to 540.7 from 517.5 as the mortgage rate eased to 7.21 percent from 7.30 percent. Selected borrowing activity responded to lower financing costs, potentially benefiting construction, transport, and fuel consumption over time, although mortgage demand is not direct petroleum demand,” Bennett continued.
The COO went on to note that “more revealing were industry estimates indicating crude inventories increased approximately nine million barrels, against expectations for a one million barrel decline and after the prior week’s 5.267 million barrel drawdown”.
The accumulation raises questions about refinery demand and crude availability, Bennett pointed out in the analysis.
“The contradiction is that refined-product inventories can remain tight while crude stocks grow,” he said.
“The oil market faces a problem more complicated than simple shortage or oversupply: crude may become available while refining bottlenecks restrict usable fuels,” she added.
“That makes the $90 Brent threshold more than a psychological support level,” Bennett continued.
The COO noted in the analysis that Thursday’s delayed U.S. Energy Information Administration weekly petroleum status report “will determine whether the industry-reported build reflects a broader trend or weekly volatility”.
“A confirmed build above expectations could pressure Brent below $90 and challenge WTI support around $85; an unexpected drawdown would suggest underlying demand remains firmer,” the COO said.
“U.S. unemployment claims, expected around 195,000 compared with 189,000 previously, provide a test of economic resilience. Strong employment could help fuel-demand expectations while lifting the dollar and yields, whereas weaker employment might reinforce concerns about slowing transport and industry,” Bennett added.
Bennett went on to state in the analysis that UK GDP and European monetary commentary influence growth expectations but warned that geopolitics could overwhelm them.
“Credible improvement in Russian and Middle Eastern flows would increase downward pressure, while renewed Hormuz disruption could rapidly restore a risk premium,” she said.
“The deeper question is whether traders have spent so long pricing missing barrels that they are underestimating what happens when those barrels return to a world where demand is contracting,” Bennett added.
Oil’s $90 Test
Also in the analysis, Bennett outlined that oil’s recent $90 “test” is “really a battle between diplomatic optimism and a fragile supply recovery”.
“Brent around $91.62 and WTI near $85.49 expose a contradiction at the center of global energy markets,” Bennett said.
“Both benchmarks declined approximately 1.2 percent on Thursday, reversing part of Wednesday’s gains when Brent advanced 1.4 percent and WTI rose 0.6 percent,” Bennett added.
“The retreat reflects expectations that diplomacy involving Iran and Russia could restore disrupted flows, reducing geopolitical risk premiums,” Bennett continued.
Bennett went on to state that U.S. President Donald Trump’s comments “defending military operations against Iran, demanding a decisive outcome, and suggesting the conflict could end soon have introduced competing risks”.
“Settlement could reduce uncertainty surrounding exports and shipping through the Strait of Hormuz, while renewed confrontation could revive disruption fears,” Bennett highlighted.
“Discussions of a possible Russia-Ukraine ceasefire add another dimension because progress could ease constraints on energy trade,” she said.
“Yet the market is increasingly pricing diplomatic possibility as though it were already physical supply,” she continued.
Negotiations do not immediately restore infrastructure, normalize shipping, or guarantee uninterrupted production, Bennett pointed out.
“Oil is not falling because geopolitical danger has disappeared. Traders are questioning how much of today’s price should reflect disruption that might eventually reverse,” she said.
Bennett went on to note that the supply-demand balance makes that reassessment complicated.
“OPEC+ production increased in October, while the group maintained existing production requirements for December, suggesting more barrels could arrive without a fresh policy increase,” the COO said.
“The latest available IEA assessment projects global oil consumption declining by approximately 2.6 million barrels per day in 2026, including a fourth-quarter contraction of 2.5 million barrels per day year-over-year,” she added.
“Global supply is expected to average around 100.7 million barrels per day before recovering in 2027, challenging crude prices if production normalizes faster than consumption,” the COO continued.
Bennett outlined, however, that “weakness in crude should not be confused with comfort across the petroleum chain”.
“Diesel inventories remain depleted, and refined-product markets exceptionally tight,” she warned.
“Refineries, transport networks and regional distribution constraints can keep diesel scarce even as crude benchmarks retreat,” Bennett said.
“Oil bears risk assuming improving diplomacy and production eliminate accumulated supply problems. Bulls risk assigning a lasting geopolitical premium when global consumption weakens and disrupted barrels may return,” Bennett added.
Trading Flat
A market quick take posted on Saxo Bank’s website today highlighted that Brent was trading flat on the day near a two-month low “as Middle East oil production continued to recover despite the deadlock in U.S.-Iran negotiations”.
“Tehran remains unwilling to surrender its enriched nuclear material, while insisting on sanctions relief and an end to the U.S. naval blockade before reopening the Strait of Hormuz,” Saxo Bank noted.
“Meanwhile, Saudi Arabia and Iraq have informed OPEC that their October production had returned to pre-war levels, highlighting how producers have increasingly relied on alternative export routes and logistical workarounds to restore output without a peace deal or secure shipping lanes,” it added.
“With UAE production also rising, the recovery is adding downward pressure on crude prices, raising future glut concerns, even as unresolved geopolitical tensions continue to threaten the normalization of regional energy flows,” it continued.
To contact the author, email
