Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Crude oil holds firm despite mounting supply glut fears
Ole Hansen
Head of Commodity Strategy
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Key points:
On the demand side, rising consumption of gasoline and distillates ahead of the peak summer season for driving and air conditioning has helped underpin the market. Meanwhile, several supply-side risks are offering additional short- to medium-term price support. These include recent wildfires in Canada threatening production, the possibility of supply disruptions in Libya due to political unrest, and the recent revocation of Chevron’s license to operate in Venezuela—potentially impacting around 220,000 bpd of output. Additionally, persistent geopolitical tensions, including the Russia-Ukraine war and the looming threat of renewed U.S. sanctions on Iran if nuclear talks break down, are keeping a firm floor under oil prices.
WTI and Brent crude oil continue to trade within a relatively wide $10 range, established after the sharp selloff in early April. This slump followed renewed concerns over President Trump’s trade war policies and an OPEC+ announcement to accelerate the unwinding of 2.2 million barrels per day (bpd) in voluntary production cuts. The move, seen as a response to overproduction by some members, was also aimed at gradually regaining market share from high-cost producers.
Since then, eight OPEC+ members have agreed to incrementally increase output at a pace of 410,000 bpd per month through at least July. This strategy has raised concerns about a potential supply glut, especially as global stockpiles begin to build. However, prices have remained relatively resilient amid uncertainty over the broader economic impact of Trump-era trade tensions and their effect on global demand for fossil fuel-based products.
The US-focused WTI crude contract, meanwhile, is trading approximately USD 1.50 below the upper end of its current USD 55 to USD 65 range. It remains supported by strong refinery demand, low inventory levels, and the disruption to Canadian production caused by ongoing wildfires. Market expectations for another weekly drawdown in U.S. crude stockpiles are also lending support. A notable factor is the situation at Cushing, Oklahoma—the delivery point for CME WTI futures—where inventories have dropped to a ten-year seasonal low of 23.5 million barrels, compared to a ten-year average of 35.1 million barrels. This tightness is helping to sustain elevated time spreads at the front end of the futures curve, reflecting robust near-term demand.
Despite these supportive factors, the broader macroeconomic outlook remains clouded. Uncertainty fueled by President Trump’s shifting stance on tariffs has intensified fears of a global economic slowdown, leading to increased short-selling activity. Some of this bearish positioning has come from macro-focused hedge funds using oil as a proxy hedge against weakening global growth.
According to the latest CFTC Commitment of Traders report, speculative short interest peaked during the week ending May 27, when managed money accounts held a gross short position of 257,000 contracts across the three major Brent and WTI crude contracts. This equates to more than 250 million barrels and marks the highest level in eight months—a level only briefly exceeded five times since 2020. Overall, as illustrated in the chart below, the net speculative position remains relatively muted at 226,000 contracts relative to a five-year average at 420,000 contracts, suggesting balanced sentiment.
However, total open interest—the combined sum of long and short positions—remains near a three-year high. This elevated activity from hedgers, swap dealers, and speculators highlights a high degree of market participation despite the ongoing rangebound price action, underscoring the broader uncertainty surrounding the near-term direction of the oil market.
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