'Bear beneath the barrel': Mirae Asset sees weak demand limiting oil rally

The bear beneath the barrel

For the past three months, the oil market has been fixated on supply disruptions stemming from the Hormuz crisis. However, contrary to expectations, it is not supply loss but demand erosion that has capped upside risks. This week’s key reports from OPEC and the EIA shift the focus to the demand side, highlighting how sustained $100+ crude has materially weakened consumption—an outcome that should increasingly concern remaining bullish positions.

The reports said the quiet part out loud

Start with the EIA's June Short-Term Energy Outlook. In February, the agency expected global oil demand to grow 1.2 million barrels per day in 2026. In May, that growth forecast had shrivelled to 0.2 mb/d. This month, it turned negative: the EIA now expects world consumption to contract by 1.1 mb/d this year, against 104 mb/d in 2025. A 2.3 mb/d swing in the demand outlook inside four months is not a revision — it is a regime change.

 

 

OPEC's June Monthly Oil Market Report, predictably more diplomatic, told the same story in slow motion. The group cut its 2026 demand growth forecast for the second consecutive month — from 1.38 mb/d in April, to 1.17 mb/d in May, to 0.97 mb/d now — with India's growth estimate trimmed by 60,000 bpd and Middle East consumption marked down as war-zone demand evaporates. When even the producers' own house view is sliding 30 per cent in two months, the demand floor is not where the bulls think it is. 

Supply: the rebound has already begun

Now the supply side — and here the headline conceals the story. OPEC+ output, per secondary sources, slipped 190,000 bpd in May to 33.13 mb/d. Bearish for prices? Read the composition. Iran alone collapsed by roughly 546,000 bpd under the US blockade. Strip Iran out, and the rest of the group — led by Saudi Arabia and Iraq — added about 350,000 bpd, restoring shut-in capacity via Red Sea routes and Iranian transit exemptions even before Hormuz reopens.

 

The intent is unambiguous. OPEC+ has now raised quotas four months running — nearly 600,000 bpd of paper increases from April through June — and is steering towards roughly 1.65 mb/d of restored targets by September. Behind that sits an estimated 10 mb/d of spare capacity waiting on the waterway. Gulf treasuries, bleeding from months of throttled exports, have every incentive to race volumes back the moment tankers move freely. Industry estimates of a post-reopening surplus run as high as 5 mb/d.

Asia's demand engines are sputtering

The destruction is most visible where it matters most — Asia's two demand engines.

 

China's May customs data was the bleakest print of the cycle: crude imports of 33.08 million tonnes, or 7.79 mb/d — down 29 per cent year-on-year and the lowest since 2017-18. Against roughly 11 mb/d before the war and 11.6 mb/d averaged through 2025, the world's largest importer has effectively withdrawn nearly 3.5 mb/d of buying from the seaborne market, leaning instead on refinery run cuts, product-export curbs and its formidable inventory cushion. Kpler data suggests processors are running down refinery-held stocks rather than chasing $100 cargoes. This is precisely the price-capping behaviour we flagged in our previous column. 

 

India's numbers carry the same fingerprints, just fresher. After four rounds of pump-price hikes since mid-May — petrol up 7.8 per cent, diesel 8.6 per cent — May petrol sales growth crashed to 2.8 per cent year-on-year from 6.8 per cent in April, while diesel barely grew at 0.9 per cent. Long-haul freight rates have slipped 13–15 per cent as cargo dries up, truckers report multi-day idle spells, and the Prime Minister himself has publicly urged fuel conservation. The world's supposed demand-growth champion is rationing at the margin. OPEC's 60,000 bpd cut to India's outlook will not be the last.

The arithmetic of a sellable rally

A clear divergence is emerging between oil producers and market participants. While producers anticipate a gradual recovery in output—reaching only pre-war levels by early January—traders are increasingly positioning for a surplus-driven market. This disconnect is reflected in evolving price action and forward expectations.

 

Bringing both narratives together, the demand outlook has materially weakened. The EIA now signals outright contraction in 2026 demand, while OPEC sees growth moderating to nearly half of last year’s pace. On the supply side, production outside Iran continues to rise, supported by a phased quota normalisation and an estimated 10 mb/d of spare capacity that could return as transit routes, particularly the Strait of Hormuz, progressively reopen. Although the EIA maintains Brent projections near $105/bbl for June–July, this is contingent on continued disruptions through Hormuz. Beyond this, its forward curve trends lower toward ~$79/bbl by 2027.

 

Market pricing already reflects this transition. Brent has corrected sharply from above $126/bbl to the low $90s, declining despite strong inventory draws—indicating that traders are discounting future surplus rather than current tightness. While geopolitical risks can still trigger short-lived price spikes, these are increasingly seen as temporary. Structurally, the market is shifting toward inventory rebuilding, faster supply normalisation, and a demand profile that no longer justifies sustained elevated prices. 

The bottom line

We are revising our stance on the oil market as underlying fundamentals have shifted more rapidly than anticipated. Historically, markets tend to bottom amid negative sentiment and peak on positive headlines—and the current wave of constructive news flow is inherently bearish for crude. Progress on regional de-escalation, reopening of key export routes, and the return of Gulf barrels are easing supply concerns. At the same time, demand destruction is now formally reflected in both OPEC and EIA outlooks, while incremental supply from Saudi Arabia and Iraq is already re-entering the market.

 

In this backdrop, the path of least resistance for Brent over the next two quarters appears skewed to the downside, with  Brent prices likely drifting below $90/bbl. The longer-dated curve reinforces this view, with the 2027 strip anchored in the high-$75 s. We recommend treating any geopolitically driven price spikes as opportunities to lighten positions. The war risk premium that once supported prices is now steadily unwinding as fundamentals reassert control.    ==================================== 

(Disclaimer: This article is by  Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.)