Crude oil outlook: Supply glut, macro headwinds to cap rally; target & more

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Crude Oil prices remain range-bound amid supply glut and geopolitical tensions

Crude oil prices continue to trade within a broader range of $5–$7, reflecting the persistent tug-of-war between supply excess and geopolitical flare-ups. WTI crude trading marginal gains in September, recovering slightly from an 8 per cent decline in August, but remains down 11 per cent year-to-date. The easing of geopolitical war premiums—especially after the US urged Russia to pursue peace with Ukraine and tensions in the Middle East subsided—has contributed to this subdued performance. Despite short-term volatility, the market lacks a strong directional bias, with prices largely capped by oversupply and weak demand signals.

Asian demand: Mixed signals

Asia remains a focal point for global energy demand, though trends are mixed. China’s crude imports reached 376 million tons Y-T-D, up 2.5 per cent year-on-year, averaging 11.3 mb/d, driven by strong inflows from the Middle East and Russia. Meanwhile, India’s crude imports fell 2.9 per cent year-on-year in August to 19.6 million tons, though they rose 3.76 per cent month-on-month. India’s Y-T-D crude consumption hit 5.7 mb/d, up 3.39 per cent y/y, supported by 6.5 per cent GDP growth and an infrastructure boom. Diesel demand rose 4.2 per cent, and gasoline demand surged 6.7 per cent from January to August. However, Russian imports to India declined 4.1 per cent y/y in August to 1.62 mb/d.

 

Together, India and China accounted for 60 per cent of global demand growth, driving Asia’s August imports to 27.02 mb/d, up 1.9 per cent y/y. Yet, the overall demand outlook remains cautious.

 

Global macro trends and PMI insights

Global macro indicators paint a mixed picture. US PMIs suggest stronger economic momentum this quarter, while UK growth remains weak but stable, and the Eurozone shows signs of deterioration. The Eurozone manufacturing PMI fell to 49.5 in September from 50.7 in August, and the UK’s PMI dropped to 46.2. In the US, unemployment rose to 4.3 per cent, with expectations of further increases to 4.5 per cent, raising concerns for Fed policymakers. Germany’s Ifo index fell to 86.5, reflecting tariff-related fears. China’s NBS PMI is expected to edge down to 49.8, indicating contraction amid property sector woes.

 

The US GDP is projected to slow sharply in Q3 to 1.5–1.9 per cent, down from 3 per cent in Q2, while China’s tepid 4.6 per cent growth continues to dampen oil sentiment. However, extended US-China trade talks through mid-November have eased tariff concerns, offering some support to Asian demand.

Supply glut and inventory build-up

The IEA’s September Oil Market Report highlights a tightening supply-demand balance, with global oil demand projected to rise 740 kb/d y-o-y in 2025. However, OPEC+ production hikes and non-OPEC+ growth have led to a 0.5 mb/d surplus.

Forecasts from OPEC, IEA, and EIA all point to oversupply

OPEC projects 1.3 mb/d demand growth in 2025, with supply rising 2.7 mb/d to 105.8 mb/d. IEA sees a 3.33 mb/d surplus in 2026, with a 360 kb/d upward revision. EIA expects 2.1 mb/d inventory builds in H2 2025. 

OPEC+ added 137 kbpd in October, following a 2.5 mbpd increase Y-T-D. Saudi Arabia’s $1/bbl price cut for October Asian deliveries signals weak demand, while US tariffs and economic slowdowns add further pressure.

Short-term geopolitical risks

Ukraine’s renewed strategy to target Russian energy infrastructure has added a short-term risk premium. The Flamingo missile, with a 3,000 km range, threatens deeper strikes. Russian refinery capacity dropped 17 per cent in August, and a recent Ukrainian attack further dented 0.3 mbpd. Potential disruptions of 500 kb/d could add a $5–$10/bbl risk premium.

US inventory trends and production

US crude inventories fell 9.3 mb in the week ending September 12—the largest draw in 2025—bringing stocks to 415.4 mb, 5 per cent below the 5-year average. Exports hit a two-year high, imports fell to record lows, and refinery utilisation dipped to 93.3 per cent. Production remains steady at 13.44 mb/d Y-T-D, up 1.9 per cent y/y, with Permian output resilient despite rig cuts.

Outlook: Range-bound with short-term upside

While US-NATO support for Ukraine may drive short-term upside in crude prices, sustained gains are unlikely without firm demand from Asia. The US President’s stern stance against India and delayed trade negotiations with China suggest continued tepid demand in the near term.

 

We expect WTI crude to trade within a broader range of $61–$66/bbl, with rallies likely capped by supply excess and macroeconomic headwinds. 

(Disclaimer: Mohammed Imran is a research analyst at Mirae Asset Sharekhan. Views expressed are his own)