Oil Rally Sustained by Risk Appetite But Fundamentals Remain Mixed

Sentiment shifted Tuesday for crude oil, lifting prices despite ongoing concerns about fundamental demand. Brent crude rose 1.24% on November 24, 2025, reaching $63.34 per barrel, according to market data. This daily gain, however, masked a weaker monthly trend, as Brent prices had already fallen 2.41% over the preceding month. The rally was primarily sentiment-driven, fueled by hopes for a potential resolution to the Russia-Ukraine conflict and expectations of U.S. interest rate cuts later this week. These factors created a short-term buying impulse in the oil market.

The underlying demand picture, however, remains problematic. The market faces significant downward pressure from fears that renewed Russian oil exports could flood a surplus market if sanctions ease. Furthermore, WTI crude oil is experiencing its own struggles, extending a four-month losing streak – its longest such run since 2023. This prolonged weakness in the U.S. benchmark reflects broader concerns about global demand dynamics that sentiment alone cannot fully overcome. While analysts see Brent averaging $63.20 by year-end and $68.70 in twelve months, the path remains uncertain. Risks are balanced between positive geopolitical developments and Federal Reserve policy shifts, meaning the recent sentiment-driven gains could be fragile if demand fundamentals fail to improve.

Demand Resilience vs. Supply Surge: The Oil Market Tug-of-War

The oil market faces a sharp contrast between near-term demand strength and growing long-term supply pressure. While demand showed notable resilience in the third quarter of 2025, supply growth is rapidly outpacing even the most conservative forecasts.

Global oil demand grew by 920,000 barrels per day (kb/d) in Q3 2025, largely driven by robust activity in China. However, this rebound remains above the International Energy Agency's (IEA) forecasted demand of 800,000 kb/d for both 2025 and 2026. This divergence signals potential weakness ahead if growth falters.

Simultaneously, supply is surging. Total global supply has risen by 6.2 million barrels per day (mb/d) since January 2025. This increase is broadly split, with OPEC+ and non-OPEC+ producers each adding 3.1 mb/d to the market in 2025. The recent weakness in October, where supply fell 440 kb/d due to maintenance and outages, does little to offset the year-to-date flood.

This imbalance manifests most clearly in inventories and prices. Global oil inventories surged by 313 mb during the first nine months of 2025, with a concerning 194 mb attributed to oil "on water" – unrefined crude stored offshore amid port congestion. The glut of supply has pressured prices significantly, pushing North Sea Dated crude down to $62 per barrel as traders worry about ongoing oversupply.

While short-term demand growth offers temporary support, the accelerating supply ramp-up, particularly from both OPEC+ and non-OPEC+ sources, creates substantial downward pressure on prices. The massive inventory build, especially the oil-on-water component, underscores the fragility of the current balance and the risks of a prolonged correction if demand fails to sustain its Q3 pace.

Risks Clouding the Rally

The recent surge in oil prices faces significant headwinds, even as sentiment improves. A primary concern is the massive build in global oil inventories, which jumped by 313 million barrels through the first nine months of 2025. This glut, particularly concentrated in oil on water stocks, creates downward pressure and raises fears of a sustained supply surplus. Compounding this, North Sea Dated crude prices have fallen sharply to around $62 per barrel amid persistent oversupply worries and ongoing sanctions on Russian producers, highlighting regional pricing weakness even as global benchmarks rise. This divergence suggests underlying market imbalances.

Beyond inventory, fundamental demand growth remains a question mark. While global oil demand did rebound to 920,000 barrels per day in Q3 2025, driven significantly by China, forecasts for 2025/2026 demand growth have slipped below 800,000 barrels per day. This slower-than-expected recovery tempers optimism about the rally's sustainability. Furthermore, the market faces heightened exposure to macroeconomic and geopolitical shocks. Tariffs, persistent uncertainty surrounding China's economic trajectory, and the ever-present risk of climate-related disruptions threaten to further destabilize supply chains and pricing dynamics. The ongoing tensions in Ukraine and associated sanctions create additional volatility and potential for sudden supply disruptions, complicating trader positioning. Maritime delays and trade credit challenges, also noted as key risks, add another layer of friction to the global oil market's operational flexibility. These combined factors demand cautious scrutiny of the recent price strength.

Brent Correction Risks Loom

The Energy Information Administration's bearish outlook casts a shadow over near-term oil markets. They project Brent crude will plunge to an average of $55 per barrel next year, a significant drop from their current November 2025 forecast of $69. This anticipated correction hinges heavily on inventory dynamics. Global stockpiles, including notable builds in China, are already exerting downward pressure in Q4 2025, with the EIA expecting this trend to persist into 2026 as a key factor driving prices lower.

However, a sharper decline faces headwinds. Record U.S. natural gas output, evidenced by LNG export capacity hitting 14.9 billion cubic feet per day in Q4 2025, is boosting domestic energy supplies. This surge in coal and gas output pushes against the inventory-driven price drop. Simultaneously, demand remains constrained. Despite OPEC+ discipline, the fundamental demand outlook stays bearish due to global inventory growth, creating a floor for prices that could temper the expected correction. Investors should monitor inventory levels closely, as sustained builds could accelerate the path to the EIA's $55 Brent forecast, but the current supply glut and demand weakness make a swift, deep plunge unlikely in the immediate future.