Rystad: Four factors indicate oil market unlikely to see prices crash to $60/bbl

The prospect of Russia-Ukraine peace talks is significant, as negative market sentiment prevails amid expectations of Russian oil re-entering global markets, Rystad Energy said in a recent report, nevertheless, it said, its own analysis of storage trends reveals that, with China's imports running 10% higher than needed, oil prices are unlikely to fall to $60/bbl and stay there for long.

“The probability of the US placing stronger sanctions on Russia is waning, with the market expecting Russian oil trade to make a comeback as a result of the peace talks—yet this sentiment masks emerging signals toward upside,” said Mukesh Sahdev, chief oil analyst, Rystad Energy.

“There is also a lack of clarity around the OPEC+ unwind on which barrels will be exported versus fed into their own refining system. The prompt time spreads between Brent and WTI continue to signal a tighter market. Overall, our view is that backwardation will continue to roll and it’s not time to stay short for long. The path to peace is likely to be non-linear,” Sahdev said.

Rystad Energy identified four factors indicating that the market is unlikely to see prices approaching $60/bbl or enter a contango situation in the near future.

1. The US Energy Information Association (EIA) is expected to report a 3.59-million-bbl draw in US commercial crude inventories for the week ending Aug.15, Rystad said. This would follow last week’s unexpected 3.04-million-bbl build. Despite that build, US commercial crude inventories remain 4 million bbl below last year’s level, highlighting that balances are still relatively tight.
2. The bearish pressure from OPEC+’s confirmed unwind of its 2.2 million b/d of voluntary oil production cuts by September is strong, with expectations of oversupply into late 2025, Rystad noted. However, it is important to note that OPEC+ has raised targets and may not produce at the announced levels. All the increase is not going to be made to the export market.  The Middle East refinery runs are likely to stay in the range of 9.6-9.8 million b/d. While the refinery runs will decline in the Atlantic (US and Europe), the refinery runs are likely to increase by 1.0 million b/d by September or October relative to July.  
3. While global liquid balances are indicating surplus in a range of 0.8-1.8 million b/d for the rest of 2025, it is also evident that China is moving a lot of supply into storage. By some estimates, China will add close to 250-300 million bbl to storage if it keeps buying imports at 10% higher rate than refinery crude demand. This buying certainly keeps Russia supported with higher pressure on India to reduce the Russian purchase, Rystad said. Between August and September, Russia has plans to compensate for its earlier overproduction by aligning with OPEC+ quotas.  
4. Canadian production is entering maintenance in next few months. And Petrobras in Brazil will face a revised oil pricing reference from September, which is likely to impact offshore and onshore operations. The company’s chief executive has indicated the operator is working to adapt its 5-year spending plan to a lower price point of around $65/bbl.

It is difficult to predict next steps in the complex peace process involving Ukraine and Russia, Rystad said, but there are signals that oil prices are not tanking and that Russian energy will flow.

Rystad said that despite a significant drop in bullish NYMEX WTI crude net-long positions, there are signals for accumulation among the commercials and some exhaustion in downward momentum. Unsolved fundamentals are likely to be resolved without crashing oil prices, Rystad continued, and the trading world is likely to witness unexpected trade flow shifts, such as news of diesel export to China from India.