Oil market is significantly oversupplied, says CIBC's Rebecca Babin

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Oil market is significantly oversupplied, says CIBC's Rebecca Babin

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WTI → 50

wti

crude's down over 20%... fundamentals have really been won the day... we will absolutely see crude test 50 WTI maybe the 40s Fundamental oversupply (demand growth 1M bpd vs supply growth 1.6M bpd plus OPEC unwinding cuts) outweighs geopolitical risks. Market significantly oversupplied with natural buffer.

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Oil prices have been surprisingly low despite global conflicts that should disrupt markets. You say crude is at war with itself - explain.

Becky
Rebecca Babin

Geopolitical risks (Israel-Iran, Russia-Ukraine, Venezuela) suggest supply reductions but sanctioned barrels still find buyers. Market experiences short-covering rallies on supply risk narratives.

Millions of barrels from Russia and Iran continue reaching market despite escalations.
Rebecca Babin

Fundamental side shows significantly oversupplied market: demand growing 1M bpd in 2025 vs non-OPEC supply growing 1.6M bpd, plus OPEC unwinding cuts.

Market has natural buffer of excess supply.
Rebecca Babin

Narrative battle between supply risk and fundamental oversupply. For 2025, fundamentals have won - crude down over 20%.

Battle will continue into 2026 with fundamental weakness and potential increased geopolitical risks.
This is different from past where demand side usually drives down markets. What if geopolitical tensions miraculously solved?

Normally down markets come from economic turmoil, not oversupply with decent demand.

Becky
Rebecca Babin

If demand gets shaky due to geopolitical/global growth risks AND geopolitical risks fade, crude could test $50 WTI, maybe $40s.

Demand has outperformed this year (~1M bpd growth, potentially 1.2M next year).
Rebecca Babin

At those low levels, US producers would respond with supply cuts, resetting market balance.

Producers won't produce at a loss - natural market mechanism.
US majors not interested in Venezuela due to low prices. Are we at point where fields shut down or exploration stops below $60?

Trump administration reportedly found no interest from US majors in Venezuela due to better fields elsewhere and insufficient price incentives.

Becky
Rebecca Babin

For US shale, $55 is where some barrels become uneconomical, accelerating below $50. Might see 100-150K bpd come off.

Supply impacts at current price point not extreme.
Rebecca Babin

US producers continue getting more efficient, driving down breakevens. Rig counts down but production hasn't responded due to longer laterals and efficiency gains.

Previous expectations of production response were wrong due to resilience.
Rebecca Babin

We're at tipping point but need to shade it a couple bucks lower due to efficiencies. Dramatic cuts would require crude strip $5 lower from here.

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