Oil Markets Boxed In: Supply Glut Overpowers Geopolitical Floor

The crude oil market is trapped in a tug-of-war between bearish fundamentals and bullish geopolitical headlines, with the bears currently holding the upper hand. WTI Crude is struggling to break significantly above the $60 handle as data points to a looming supply surplus.

IEA Warns of Massive Oversupply

The International Energy Agency (IEA) has delivered a sobering outlook, forecasting global oil supply to grow by 2.5 million barrels per day (bpd) in 2025—far outstripping the projected demand growth of 930,000 bpd. This surplus is driven by non-OPEC+ production, particularly from the Americas, which is effectively neutralizing OPEC+ production cuts.

Confirming this trend, the American Petroleum Institute (API) reported another significant inventory build in the U.S., with crude stocks rising by 3 million barrels following a massive 5.27 million barrel build the previous week. Gasoline inventories also surged, indicating lackluster consumption despite lower prices.

Geopolitics: The Only Lifeline?

While fundamentals are bearish, prices are prevented from collapsing by lingering geopolitical risks:

• Trump's “Deal” Tone: President Trumps rhetoric on Iran has softened slightly, hoping to avoid military action, which reduces the immediate “war premium.”
• Regime Change Risks: Reports of U.S. pressure on Cuba and the aftermath of the Venezuela intervention keep traders alert for supply disruptions, though these are secondary to the macro supply glut.

Trading View

For USD/CAD, the correlation with oil remains critical. The weak oil price outlook coupled with the IEA's surplus warning serves as a headwind for the Canadian Dollar (CAD). Unless there is a tangible supply disruption in the Middle East, the path of least resistance for Crude remains sideways to lower, capping gains for the Loonie.