What Do Oil Prices Tell Us About the Global Oil Market? Not a Lot!

Global oil markets face increasingly sharp and frequent price shocks as geopolitical tensions, opaque stockpiling and tightening Western sanctions are leaving many traders in the dark.

The growing influence of external, unpredictable forces on the world’s largest and most liquid commodity market raises doubts about how accurately prices reflect physical fundamentals.

Indeed, the global oil market appears to be struggling to get a handle on its basic supply and demand balance. The International Energy Agency expects oil production to exceed demand by 3.7 million barrels per day this year, more than 3% of global consumption.

Yet prices tell a different story. While benchmark Brent crude prices have moved around in recent weeks, they remain firm at above $65 a barrel.

What’s more, the forward curve is in steep backwardation, a structure usually associated with tight supply.

So what explains this? In the past few weeks, uncertainty about events in the Middle East has played a role. The risk of U.S. military strikes against Iran, with the possibility of the conflict spilling over across the region, has helped push up oil prices towards $70 a barrel.

Amid the back-and-forth headlines, the CBOE crude oil volatility index has risen to its highest level since the 12-day Israel-Iran war last June.

The U.S.-Iran tensions are ultimately a short-term factor, unless the conflict truly spirals, but other longer-term trends threaten to obscure the supply-demand picture for months.

STOCKS ARE BUILDING

One sign of an oversupplied market is typically an increase in storage, and stocks are building globally. But geopolitical fragmentation is creating regional divergences that complicate this simple equation.

Morgan Stanley estimates global crude inventories rose by 520 million barrels, or around 7%, in 2025 and are on track to rise by another 730 million barrels this year. Most of the buildup took place in China, which placed roughly 800,000 bpd into storage over the past year, according to ROI estimates. That figure implies an increase of more than 300 million barrels in 2025, accounting for a large share of excess supply.

But China’s exact crude holdings and storage capacity remain murky. A large portion of its strategic reserves sits in underground sites beyond satellite monitoring, limiting visibility into both how much China has actually stored and how much more it can add.

Uncertainty also surrounds China’s buying strategy. Beijing tends to reduce purchases when prices rise, so it may have slowed stockpiling after prices recently rose toward $70 a barrel. But, again, the market does not know.

This opacity has become a major blind spot for the oil market and has altered the way rising storage levels are interpreted.

Historically, oil prices have closely tracked inventory changes in Organisation for Economic Co-operation and Development countries, particularly the U.S. and Europe, which long dominated global demand. An increase in storage was usually considered bearish.

However, Chinese stock builds are currently perceived as bullish, an indication of strong demand that offsets the negative price signals coming from the builds in visible OECD inventories, according to Martijn Rats, an analyst at Morgan Stanley.

This possibility can help explain why crude prices haven’t slid as global inventories have risen.

GEOPOLITICAL CONFUSION

Western sanctions on several oil-producing nations are adding further complexity to this picture.

China, India and Turkey have absorbed most sanctioned Russian, Iranian and Venezuelan crude in recent years, importing around 3.5 million bpd in 2025, according to Kpler. But this picture is shifting following a ban by the European Union on imports of fuels refined from Russian crude that took effect on January 21 and President Donald Trump’s increased pressure on India to curb Russian oil purchases.

India has already cut Russian crude imports to about 1 million bpd this year, down from 1.6 million bpd in 2025, and, according to Trump, promised to further reduce purchases.

These shifts are forcing broader market adjustments. Western restrictions have boosted demand for non-sanctioned barrels and for compliant tankers, driving up costs for refiners, especially in Asia, which relies heavily on seaborne crude due to limited local production.29dk2902l

Asian refining margins have been slimmer than those in Europe since early January – with the former averaging around $6 a barrel so far this year compared to $9 for the latter. This difference is largely due to logistics costs.

“Freight is a meaningful regional differentiator this year,” said Keshav Lohiya, the CEO at HiLo Analytics.

Freight rates for a very large crude carrier (VLCC) sailing from the Middle East or West Africa to Asia have jumped nearly 150% since the start of the year, according to LSEG data.

Current shipping costs can now exceed $3 a barrel for Asian refiners, compared with closer to $2 for European plants.

At the same time, the restrictions have led to an accumulation of sanctioned crude at sea as sellers struggle to find buyers.

Russia, Iran and Venezuela account for about 30% of the 1.3 billion barrels of crude oil currently in transit – which is far higher than their share of exports – indicating slower discharge rates as traders struggle to place the barrels.

The result is a market that looks both abundantly supplied and unusually tight.

That tension reflects a market increasingly driven not by easily perceived fundamentals, but by geopolitics and the behaviour of opaque stockpilers.

Until transparency improves or political risks ease, oil prices are likely to remain out of sync with measured supply.

Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn, and X. And listen to the Morning Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.

(Ron Bousso; Editing by Paul Simao)