September 1st - Last week, crude oil traders reduced their bullish positions to the lowest level in 16 years due to widespread expectations of supply surplus. However, CWG Markets believes that despite persistent narratives about "oversupply," oil prices quickly rebound whenever geopolitical risks or potential supply chain disruptions emerge. This suggests that the so-called "surplus" exists more in predictive models than in actual market reality.
In fact, oversupply expectations primarily stem from the International Energy Agency (IEA) and institutions promoting net-zero objectives. However, CWG Markets notes that these forecasts often ignore actual data that contradicts their narratives or rely on computer models with inaccurate input data, leading to biased results. This is one reason why the IEA has repeatedly shown deviations in its predictions.
Currently, Brent crude hovers around $67 per barrel, while West Texas Intermediate falls below $65. This is not due to decreased global oil consumption - demand continues to grow steadily compared to three years ago when oil prices broke through the $100 threshold. CWG Markets believes that the IEA and other institutions emphasize oversupply simply because it aligns with their model logic, rather than truly reflecting actual demand.
On the demand side, while slower growth in Asian markets is factual, slower growth does not mean demand contraction, particularly given the parallel energy structure adjustments and domestic oil and gas resource development, where demand maintains growth momentum. Meanwhile, Europe shows contradictions in its energy transition process. On one hand, policies restricting fuel vehicles have established timelines, while on the other hand, electric vehicle sales fall short of expectations, even risking aviation fuel shortages. CWG Markets believes this contrast precisely demonstrates that global oil demand has not been easily replaced by policy expectations.
Simultaneously, the U.S. Energy Information Administration (EIA) projects that global liquid fuel demand in the second half of this year will increase by approximately 1.6 million barrels per day compared to the first half. This contrasts sharply with the IEA's "surplus" predictions. Forecasts from the EIA, along with OPEC and Standard Chartered Bank, tend to be based on actual market supply and demand data rather than computer model assumptions, which explains their greater reliability.
On the supply side, OPEC's recent decision to end production cuts initially led markets to expect significant oil price declines, with some analysts predicting drops below $50 per barrel. However, CWG Markets indicates that actual conditions show not all OPEC member countries can quickly restore post-cut production levels, raising the possibility of future supply shortages. This is why oil prices have not collapsed as some predictions suggested, but instead maintained relative stability.
More notably, whenever supply tightening signals emerge, such as rumors of new sanctions on Russian energy exports, markets react immediately. This price sensitivity to supply risks indicates that crude oil fundamentals are not as surplus-oriented as some institutional models suggest. CWG Markets notes that last week, Russian-American summit talks bringing "peace expectations" initially caused oil prices to decline, but subsequent EU-Ukraine meetings quickly reversed negotiation prospects, with market concerns about additional sanctions returning to focus, resulting in oil prices rising nearly 2.9% for the week.
Such dramatic market volatility further proves that model predictions alone cannot capture the true supply-demand landscape. Reviewing 2021, the IEA claimed no new oil and gas investment was needed, but months later called for countries to increase production due to soaring prices, and now again calls for strengthened investment to ensure supply. Facts prove that institutions like the IEA often adjust their positions only after actual data is released.
In conclusion, crude oil speculation and model predictions cannot truly reflect market fundamentals. CWG Markets emphasizes that the most reliable basis for judgment remains actual supply and demand data. Only by basing decisions on real physical market conditions can investors more accurately grasp oil market trends, rather than being swayed by predictive models.