Brent Oil: the risks of oversupply

Over the past three weeks, the U.S. stock market has felt like it's been left adrift, with no clear support in sight. Major indices, including the S&P 500 and Nasdaq 100, have slipped into correction territory, breaching their 200-day moving averages after peaking in mid-December. Investor sentiment is increasingly weighed down by recession concerns, as macroeconomic data continues to show signs of weakness.

Meanwhile, Brent crude oil recently dipped below $70 per barrel for the first time since September 2024, a significant decline from levels above $80 seen in mid-January 2025. Our analysis suggests that approximately 70% of this downturn can be attributed to the narrowing price premium of crude oil futures over the past few months. This signals a potential softening of supply-demand fundamentals in the spot market, raising concerns about a looser oil market balance.

Despite the weak macroeconomic backdrop, U.S. refined oil consumption in January and February outperformed expectations, suggesting stronger-than-anticipated demand. This trend could drive increased refined oil consumption in OECD countries through the first quarter of 2025. Additionally, crude oil inventories remain tight, reinforcing our view that the underlying supply-demand balance in the spot oil market has not fundamentally changed. However, the prospect of rising OPEC+ production could exert downward pressure on prices in the coming months.