Oil & Gas

Global oil markets are experiencing a shift toward oversupply as peak summer demand winds down and production ramps up across several key regions. Prompt premiums for benchmark crude prices—such as Brent, West Texas Intermediate (WTI), and Dubai—are declining in comparison to future-dated contracts. This softening comes as output increases from OPEC+ members starting in September, along with expanded production from non-OPEC countries like Brazil, Guyana, and Norway. At the same time, concerns over potential U.S. sanctions on Russia are easing, further reducing pressure on supply.

The market structure known as backwardation, where near-term prices are higher than future ones, is now narrowing. This indicates that the market expects supply conditions to loosen in the coming months. Dubai-based oil trader Shohruh Zukhritdinov noted that the Brent and Dubai timespreads are weakening primarily due to expected OPEC+ supply increases and stable Russian exports via the Baltic and Black Sea. Meanwhile, although U.S. crude supply remains steady, refinery throughput is set to decline as the sector moves into the “shoulder season,” traditionally a period of lower demand.

Traders are also reacting to a seasonal slowdown. As summer ends in the Northern Hemisphere, diesel margins in Europe are dropping, and demand for crude burning in power generation, particularly in Saudi Arabia, is decreasing. This has prompted downward revisions in crude demand expectations. According to Onyx Capital Group’s Harry Tchilinguirian, softening refinery margins and uncertain demand from China are putting pressure on global markets. These dynamics raise the question of how surplus barrels—particularly from Saudi Arabia—will be absorbed in the coming months.

Despite these bearish signals, some regional benchmarks like Dubai remain relatively resilient compared to Brent, maintaining a narrow Exchange of Futures for Swaps (EFS) spread and supporting Atlantic Basin crude flows to Asia. Asian refiners are actively securing barrels from the U.S., Africa, and Europe for September and October deliveries. However, uncertainty still lingers around Russian oil supply. India has been buying more spot cargoes to replace Russian oil, and while some Urals barrels are moving to China, market analysts like Neil Crosby from Sparta Commodities warn that unresolved Russian supply issues could create further volatility in the short term.