Page 23 - Policy Economic Report - September 2025

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Oil Market

Crude oil price – Monthly Review

The oil market is currently being influenced by a variety of competing factors. On one hand, the risk of
supply disruptions due to newly imposed sanctions on Russia and Iran looms large. On the other, these
concerns are tempered by increased supply from OPEC+ and the possibility of growing global oil
inventories. Meanwhile, China continues to accumulate crude oil reserves, contributing to a slight
backwardation in Brent crude futures.

The tightened sanctions on Iran and Russia have had only a limited effect on global supply and trade flows,
despite a downward trend in exports from both countries in recent months. However, the European
Union's impending ban—effective from the beginning of 2026—on imports of refined products derived
from Russian crude could potentially reduce output and significantly alter trade routes in the near future.

Oil prices remained relatively stable following OPEC+’s decision on 7 September to begin unwinding the
second tranche of supply cuts that have been in effect since April 2023. The group of eight OPEC+ member
countries plans to increase its production target by 137,000 barrels per day (kb/d) in October. Should this
pace continue, it would take approximately 12 months to fully phase out the 1.65 million barrels per day
(mb/d) of cuts, leaving the broader 22-member alliance with 2 mb/d of supply reductions still in place.

The actual increase in supply for October is expected to fall short of the targeted rise, as Iraq, the UAE,
Kuwait, and Kazakhstan are already producing 1.1 million barrels per day (mb/d) above their assigned
quotas. Additionally, other producers, including Russia, are encountering capacity constraints, according
to our estimates. As of September, OPEC+ has increased actual crude output by 1.5 mb/d since the first
quarter of 2025, which remains significantly below the announced target of 2.5 mb/d. The largest
production gains have been contributed by Saudi Arabia and other key Middle Eastern producers.
However, tanker tracking data suggest that the majority of the additional volumes have been absorbed
domestically through increased regional refinery activity and power generation, rather than being
exported from the region.

Hedge funds and other money managers turned increasingly bearish on crude oil futures in August, with
combined NYMEX and ICE WTI contracts moving net short during the last three weeks of the month.
Speculators had been steadily reducing bullish bets in WTI since mid-July, fuelling uncertainty among
market participants, increasing volatility and exerting downward pressure on prices. Money managers
also cut bullish positions in ICE Brent, selling an equivalent of 55 mb in August.

Premiums of light sweet crude over medium sour grades narrowed in Asia and on the US Gulf Coast

(USGC), in line with a sharp decline in the Brent–Dubai spread, which moved into a deep discount. This
reflected a stronger sour crude market amid concerns over supply disruptions to medium sour grades due

to sanctions and geopolitical developments. However, though sweet–sour crude differentials in Europe
widened slightly, they remained relatively low.

Crude spot prices averaged lower in August, pressured mainly by heavy selling activity in the oil futures
markets, which weighed on sentiment. Weaker refining margins in Europe and Asia added to the
downward pressure. A decline in sour crude benchmarks in the East of Suez market was limited compared

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