Brent and Butter: Is the Market Toasting Sideways?

A fundamental analysis behind my belief that the Brent Crude market is going to move laterally over the next few months

Stagnating between low points - held up and sometimes spiked significantly by concerns regarding any real Russia/Ukraine peace, Trump tariffs (recently Venezuelan/Iranian oil), and sudden OPEC supply controls -  and highs that are beat down by decreasing demand - contributed to by slowing global economic growth - and a general trend of oversupply.

S&P Global oil markets insights predicts the outcome of crude prices to move lower over the course of 2025 because of sluggish demand and overall rising production. Particularly rising production from OPEC producers, as it is not economically viable to cut their supply further from 2024 cuts, even if they do sometimes enforce certain members to pertain to their supply quotas (e.g. recently telling Iraq + Kazakhstan to cut back) -  outweighing any supply squeezes from tariffs placed on certain OPEC producers like Iran and Venezuela.

However, I do see a strong limit on price lows because of the continued action of tariffs, minor OPEC supply manipulations and war time disruptions.

Seasonality factors will also start to kick in over the next few months in the build-up to summer, further limiting the effect of slowed down demand growth and overall increases in global oil supply in the short to mid-term future.

It will be about trading the swings and timing them correctly. I believe the price between now through to summer should not drop too much below 2025’s low of $68/bbl for Brent crude, considering the factors discussed and if prices do swing back down to this range, providing the right market conditions, this could indicate opportunities to buy the swing upwards. 

(Right market conditions to look out for):

Continued tariffs moving demand away from OPEC:

• (Notably Iran and Venezuela) and consequently increasing interest in Brent. If Trump continues these tariffs, and dare I say add any more to the list, this could really raise WTI crude prices in the short-term (which would in turn increase Brent crude), countering his narrative of “drill, baby, drill” and to creating overall lower local oil prices. I think his general political arrogance and self-righteousness probably means at the very least he will not take back current tariffs in the time being to support his mission for lower local oil prices, and could even lead to a huge lack of foresight preventing him from holding back on potential further tariffs in his quest to prove US strength and independence. It should also be noted that many US shale producers are refusing to increase production, despite demands from Trump, due to oil prices potentially hovering at unprofitable levels amid global/local demand stagnation and inflationary cost pressures. 

OPEC’s short-term policies for supply control:

• I think could occur more than once this year in small but concerted attempts to stabilise their otherwise growing supply relative to demand. 

Unsettled Ukraine/Russia conflict:

• Trump trying to bully Ukraine into huge land concessions for ‘peace’ will not work, as this will prove a bigger existential threat to Europe down the line, and they have shown willing to stand up to Trump (and ultimately Putin’s demands) by further aligning themselves and NATO with Ukraine. Putin will not tolerate a lack of land concessions as it will weaken his position in Russia, and create a sense of futility surrounding his decisions to continue war with Ukraine. Will be important to monitor the breakout of any further hostilities amid this shaky ‘ceasefire’, especially on refineries,  over the coming months.

I think it would be wise to hedge all long Brent futures with long-expiry put options. This will mean there will not be a need to have to time short futures correctly, and even if long futures are closed on downwards movements, losses will be covered by the selling of these put options.

A lesson from history 

Late 2011–2013

Price action: After the Libyan civil war disrupted supply in 2011, Brent prices spiked above $120/bbl. But through 2012 and much of 2013, Brent traded mostly in a sideways band (roughly $100–$120), oscillating on each new headline about Middle East tensions and Eurozone economic worries.

Key factors:

• Iran sanctions and Gulf tensions propped up prices, creating a “geopolitical premium.”

• Slow global recovery from the 2008–09 financial crisis, and especially Europe’s sovereign-debt struggles, offset that risk premium, tempering prices on the high side.

• OPEC interventions—Saudi Arabia often adjusted output to keep prices from falling too far below $100, which they at the time felt was a sustainable floor.

Parallel to now: Geopolitical headlines (sanctions, regional conflict) and sudden supply manipulation kept a floor under prices, but sluggish economic conditions prevented a breakout above the high end.