Guotai Haitong Securities Co., Ltd. has released a research report noting that international oil prices remained volatile with an upward bias in July. Looking ahead, the firm suggests that geopolitical uncertainties persist, and the reopening of key shipping routes has been repeatedly delayed. With inventory drawdowns expected to continue in Q3, prices are likely to be more prone to gains than losses, though upside potential remains capped.

The report indicates that oil prices have retreated from earlier levels, leaving limited room for a rebound. The firm recommends focusing on leaders in the polyester industry and refining sectors, where easing cost and demand pressures are expected to improve business conditions. Below are the key insights from Guotai Haitong Securities Co., Ltd.:

Oil Price Outlook

Geopolitical turbulence remains a recurring theme, with the reopening of the strait facing a rocky road. The continuation of inventory drawdowns in Q3 makes prices more likely to rise than fall, but the upside is constrained. Drivers for a rebound include: (1) repeated geopolitical twists that keep delaying strait reopening, while global crude inventories remain low across multiple regions over time; (2) shipping through the Bab el-Mandeb Strait is also impacted; (3) prior buffer measures may shift, including the nearing end of IEA stock releases, the reinstatement of Russian sanctions, and increased Chinese crude imports. Capping the upside are: (1) the peak season for refined product demand is drawing to a close; (2) with midterm elections approaching, the likelihood of geopolitical escalation is low.

Supply Side

Supply forecasts for Q3 and Q4 have been revised downward. The 2026 global total crude supply is projected at 102.0 and 100.8 million barrels per day, respectively, marking year-on-year declines of 4.3 and 5.3 million barrels per day, with adjustments of -0.6 and -1.07 million barrels per day versus last month's forecasts. The IEA and EIA project 2027 global crude supply at 110.3 and 109.74 million barrels per day, reflecting year-on-year increases of 8.3 and 8.92 million barrels per day. According to IEA and EIA forecasts, total global crude supply for Q3-Q4 2026 is estimated at 101.3, 106.6 and 99.7, 103.7 million barrels per day, respectively, with adjustments of -1.7, -0.9 and -1.6, -3.5 million barrels per day versus last month. Due to geopolitical conflicts, both the EIA and IEA have lowered Q3 supply forecasts, with Q4 supply also revised down in tandem.

Demand Side

The three major agencies show divergence in demand forecasts, with the IEA and EIA expecting a decline in 2026 demand while OPEC maintains growth projections. Based on IEA, EIA, and OPEC forecasts, global crude demand for 2026 is projected at 103.3, 102.73, and 105.7 million barrels per day, respectively, with year-on-year changes of -1.13, -1.23, and +0.62 million barrels per day, and adjustments of -0.18, -0.04, and -0.2 million barrels per day versus last month. According to IEA, EIA, and OPEC projections, the quarterly average global crude demand for Q1-Q4 2026 stands at 104.4, 100.91, 104.27, and 106.13 million barrels per day, with adjustments of 0.06, -0.14, -0.34, and -0.14 million barrels per day versus last month. High prices have caused demand destruction in Q2, with the negative feedback effect gradually diminishing over time.

Inventory Side

The inventory drawdown is expected to widen in 2026, with the IEA and EIA tightening their Q3 and Q4 balance estimates. The IEA and EIA project the 2026 global crude market to remain tight overall, with full-year supply-demand balances of -1.3 and -1.9 million barrels per day, adjusted by -0.40 and -1.02 million barrels per day, respectively, indicating a widening drawdown. For Q3-Q4 2026, the global crude market supply-demand balances are estimated at -1.8, +0.2 million barrels per day and -3.84, -0.63 million barrels per day, respectively. The IEA and EIA have both moved toward a tighter balance for Q3-Q4.

Risk Warnings

Risks include significant volatility in crude prices, changes in OPEC+ production policies, faster-than-expected output growth from non-OPEC+ producers, a slowdown in global economic growth leading to lower crude demand, and shifts in geopolitical conditions.