By Avi Salzman

Oil tends to trade on supply and demand fundamentals, and right now those fundamentals are overwhelmingly bearish. Oil supply is soaring, while demand is just so-so.

Normally that would cause prices to fall, but in recent weeks, oil has refused to drop. Brent crude, the international benchmark, was up 0.5% to $68.47 per barrel on Tuesday, after rising 1% on Monday and for the prior two weeks in a row. West Texas Intermediate, the U.S. benchmark, has also risen over that time span.

Oil stocks have persevered, too. The Energy Select Sector SPDR Fund is up 6% in the past month.

The rally comes as investors have prepared for oil to crash. Energy traders made twice as many bets that oil would fall as bets that it would rise over the past week, pushing the long-short ratio on U.S. oil to its most bearish level since 2007-2008, according to Rebecca Babin, senior energy trader at CIBC Private Wealth. That could be an omen. In the second half of 2008, oil fell by more than 60%.

The reason traders are bearish is that producers are pumping out more oil than consumers are using. Supply is on track to grow by 2.5 million barrels a day in 2025, even as demand rises just 680,000 barrels, according to the International Energy Agency, or IEA.

After spending years holding back production, OPEC and allies like Russia have agreed to restore 2.2 million barrels to the market this year. And producers outside of OPEC are also ramping up.

There are three main factors that have kept prices elevated. The first is that China is buying an extraordinary amount of oil to put in storage. China has been buying 530,000 barrels a day on average for storage this year, about twice as much as usual, according to Jim Burkhard, global head of crude oil research at S&P Global Commodity Insights. China, which needs to import most of its oil, has about 1.4 billion barrels of crude in storage, versus around 800 million for the U.S.

Stockpiling oil could make China less dependent on the U.S. as the two nations escalate a trade fight.

"This fits in with China's broader push to try and insulate itself from vulnerabilities in foreign supply chains," Burkhard said. He expects the stockpiling to slow soon, however, because refineries have stored nearly enough oil to comply with government directives.

Other geopolitical factors are also keeping oil prices elevated. President Donald Trump has threatened stiffer sanctions on Russian trading partners such as India if Russia doesn't agree to a cease fire in Ukraine. If Russian oil is taken off the market, prices would rise.

Another big reason oil prices have stayed elevated is that demand has remained relatively strong in the past few weeks. Demand from refiners tends to be strong when it is summer in the Northern Hemisphere, because people drive more. But Labor Day has come and gone, and oil's road trip could also end soon.

"After the summer ends -- September, October -- that's when we expect the surplus to become much more visible," Burkhard said.

He sees oil prices falling below $60 by the end of the year.

Babin also thinks the fundamentals look bearish for oil, but she isn't sure prices will fall dramatically. Traders are already set up for a drop, so there is less of a chance they will be surprised by negative news, triggering a selloff.

"It's such a consensus view that it's already pre-positioned," she said.

If the bad news is baked in to the price, oil's bullish streak could continue.

Write to Avi Salzman at avi.salzman@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

September 02, 2025 13:22 ET (17:22 GMT)

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