Supply glut, tariff wars weigh on global oil outlook

A double whammy of demand threats from global tariff war and increased supply has opened up the way for considerable downside volatility in oil markets, analysts say.

- Somshankar Bandyopadhyay [e-mail]

“Premiums for downside protection have spiked to their widest levels since the pandemic. Time spreads have also shifted considerably. The 1-6 month spread in Brent futures has fallen from more than a $3 per barrel backwardation as the start of April to barely more than $1 per barrel now,” Edward Bell, acting group head of research and chief economist, Emirates NBD, wrote in a note.

Emirates NBD has downgraded its Brent oil price forecast to $68 per barrel, down from $73 per barrel previously while for WTI it now expects prices at an average of $65 per barrel, down from $711 per barrel previously.

Both the WTI and Brent curves are still some ways from moving into contango but if demand fades substantially this year as a result of the trade dispute then curves are likely to fall out of the backwardation they have held for several years. “Prices have recovered and downside premiums have narrowed following the announcement of a 90-day pause on widespread tariffs but the risk of further downside moves is high,” Bell said.