Crude gains on trade optimism, yet long-term fundamentals remain fragile
WTI futures rallied this week, climbing nearly $3 to settle above $61/Bbl, largely on renewed optimism around US-China trade talks. The WTI curve remains in backwardation through the end of 2025 before flipping into contango in early 2026, reflecting market expectations of near-term tightness giving way to longer-term oversupply. The structure implies that while prompt fundamentals have stabilized, concerns persist around future supply growth and demand uncertainty tied to global trade tensions.
Recent earnings calls and EIA forecasts revealed early signs of softening in the US supply outlook. Citing deteriorating prices, Diamondback Energy expects onshore rigs to fall 10% by the end of Q2, including three of its own. Coterra Energy also announced plans to reduce its Permian rig count to seven in the second half of the year. The EIA’s latest Short-Term Energy Outlook echoed these dynamics, trimming its 2025 crude production forecast to 13.42 MMbbl/d, down 0.7% from last month’s estimate, and projecting a slight decline in 2026. While some moderation in growth is taking shape, the broader supply outlook remains relatively stable, dampening the immediate market impact of isolated cutbacks.
On the macro front, sentiment improved after President Trump announced a trade framework with the UK, a limited but symbolically important step toward easing global trade friction. The deal includes enhanced US export access and streamlined customs processes, while the UK gains partial tariff relief. Meanwhile, Treasury Secretary Scott Bessent is expected to meet with Chinese officials in Switzerland this weekend, marking the first formal dialogue aimed at de-escalating the US-China trade conflict. A breakthrough could support global demand expectations, but until tariffs are materially reduced, the demand outlook remains clouded.
This week’s rally reflects improved sentiment, but the forward curve and broader fundamentals remain cautious. With cautious signals from shale producers, slow-moving macro developments, and structural weakness further out on the curve, AEGIS maintains a neutral view with bias to the downside, as recent price strength appears sentiment-driven rather than rooted in lasting fundamental change.