Why is the price of oil under $100/bbl?

[dan_s]

Note below from HFI Research received Apri15 with my comments in blue.

If you had traveled back in time and told me the following:

Iran, the US, and Israel are at war.

The Strait of Hormuz is “effectively” closed with ~11 million b/d of crude oil production shut-in.

Global SPR release of 400 million bbls. < Which is not even close to balancing the oil market.

Cumulative production lost to date totalling 400 million bbls.

First of all, I wouldn’t have believed you. Second, this kind of scenario is what you write in science fiction novels. Finally, if you had told me that June WTI contracts would be trading at ~$88/bbl and Brent would be at $95/bbl, I would’ve laughed. < Spot market prices in several areas are $30 to $40 per barrel higher than the front of the NYMEX strip prices.

Yet here we are.

I think all the energy specialists out there are trying to make sense of the disconnect between oil prices and fundamentals. Remember that in our “Oil Market Breaking Point“ article, we made the point that jawboning will work until it doesn’t. There’s a certain point in the oil market that once you cross it, it’s hard to go back. The reason for this is the cumulative storage lost even in a reopening scenario. < Today there is no "buffer" to meet demand, and several countries are already forced to ration gasoline and diesel.

From a narrative standpoint, I don’t think energy specialists have to look very far to understand why the market still doesn’t care about the shortages that are coming. US commercial crude storage remains bloated, with no signs of large draws until early May. The Trump administration is making it incredibly difficult for traders to put on long positions with each headline having the possibility of jolting oil prices lower.

But the math is what it is. Production shut-in is barrels that will be replaced via lower storage elsewhere. The longer prices are kept suppressed, the longer it will take for the eventual rebalancing to happen. What the market is failing to realize is that by not signaling early demand destruction, it ultimately magnifies the impact down the road.

Inflection Point
Over the past few hours, I’ve reached out to a few very smart oil traders. I only had two questions:

Where am I wrong?

What am I missing?

One trader brought up something that I should’ve known better: the generalists don’t care until onshore inventories start to plummet.

When I first wrote the breaking point article, I was thinking along the lines of “when is the last tanker arriving at its final destination from the Persian Gulf?”.

Well, the reasoning behind that was that you want to find the starting point for when onshore inventories start to plummet. I figured the oil market should be able to extrapolate the implied balance forward and price into oil to prevent a tank bottom scenario.

Oops, I guess I was wrong on that.

So was I wrong in saying that global onshore inventories won’t plummet now?

No, and I have yet to find anyone who can prove the math otherwise. Again, the math is what it is.
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MY TAKE: The only thing that explains oil being under $100/bbl is that the "Paper Traders" who control the NYMEX strip prices are afraid of what Trump will post next. The President obviously wants to keep the price of oil as low as he can, but "the math" will take over and oil will have to be "rationed by price" because consumption of oil-based products cannot exceed physical supply for long. Historically, the global oil market has never been as under-supplied as where its headed.

[dan_s]

EIA's oil price forecast below is what I am using in my forecast/valuation models.

"The Brent crude oil spot price averaged $103 per barrel (b) in March, and we expect it to peak in the second quarter of 2026 (2Q26) at $115/b before easing as production shut-ins slowly abate. We maintain a risk premium on crude oil prices throughout the forecast period as we expect uncertainty around future supply disruptions to keep prices above pre-conflict levels. We forecast the Brent crude oil price will fall below $90/b in 4Q26 and average $76/b in 2027. This price forecast is highly dependent on our assumptions of both the duration of conflict in the Middle East and resulting outages in oil production."