Tariffs threats and trade tensions lift the Asian sour market as gluts emerge in the West of Suez

14 August 2025 Kpler 

Despite a notable deterioration in supply-demand fundamentals since last month’s Crude View, we have significantly revised our oil price forecast higher. Our new 12-month forecast for NSD now averages $60.30/bbl, up from $55/bbl in our previous update. This upward adjustment is not rooted in improving balances, in fact, our data points to a growing oversupply, but rather in the increasing disconnection between market sentiment and fundamentals. Oil prices are reacting more to political noise, especially signals from President Trump, than to actual physical imbalances.

Our updated balances show a sustained oversupply of roughly 2 Mbd through to the end of 2026. Yet, investor sentiment has turned more bullish, particularly on Brent. According to CFTC data, net long positions from portfolio investors and money managers on ICE Brent have surged from 166 Mbbls a month ago to 261 Mbbls today. WTI, in contrast, has seen net length halve over the same period, from 178 Mbbls to 88 Mbbls, suggesting a geopolitical skew in positioning.

One of the key drivers behind this divergence is the rising risk premium linked to Russian oil.

The US administration has floated the possibility of secondary sanctions or tariffs on buyers of Russian barrels, creating uncertainty among market participants, particularly India. While no immediate supply disruption has materialised, the threat alone has been enough to lend support to prices.

Interestingly, other headline developments have failed to trigger material price corrections. Market participants brushed off bearish news such as the potential Trump administration reversal of Chevron’s license in Venezuela. Similarly, rising trade tensions and tariff announcements did not catalyse a sell-off. As a result, front-month ICE Brent has remained in a relatively tight range, oscillating between $67 and $73/bbl throughout July.

While we still expect the market to eventually absorb and react to the underlying weak fundamentals, we now believe that downside risks are more limited in the short term. One reason is the erratic, headline-driven nature of market reactions. President Trump's potential for sudden announcements has diminished speculative appetite on both the long and short sides. His recent quote that “WTI at $64/bbl is great” exemplifies the kind of verbal intervention that adds a floor to price expectations.

Politically, Trump’s position is also complex. While he advocates for lower fuel costs to support the broader US economy, he is unlikely to alienate key oil-producing states like Texas, North Dakota and Alaska, where his voter base is strong (56%, 67%, and 54%, respectively in 2024). With breakeven prices for new Permian wells estimated between $60–65/bbl WTI, we view this range as a short-term price floor.

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