Oil Prices Have Been Bullish. But the Bears Are Lurking.

(Illustration by Elias Stein)

Oil prices defied doubters all summer, staying elevated despite a growing risk of oversupply. But the market can’t outrun reality forever. Oil production is on track to grow by 2.5 million barrels a day in 2025 and demand by just 680,000 barrels, says the International Energy Agency. The market looks like it’s being flooded with oil that no one is using.

Traders have been preparing for a price drop. Late last month, their ratio of bearish bets to bullish ones hit its bleakest level since 2008, says Rebecca Babin, senior energy trader at CIBC Private Wealth. But Brent crude, the international benchmark oil price, has stayed strong, holding above $65 per barrel to end the summer.

Created with Highcharts 9.0.1A Pricing AnomalyThroughout the summer, oil prices have held up—until the past few days.“Source: FactSetAs of Sept. 9, 4:11 p.m. ET

Created with Highcharts 9.0.1Brent CrudeWest Texas Intermediate2025Sept.556065707580$85 per barrel

The biggest reason? China has been buying 530,000 barrels a day on average for storage, twice as much as usual, says S&P Global Commodity Insights head of crude oil research Jim Burkhard. All of that oil is for national security. China, the world’s largest oil importer, has 1.4 billion barrels of crude in storage, making it less dependent on the U.S. in a trade war.

Created with Highcharts 9.0.1Paddling UpstreamEnergy stocks have recently rallied despite bearish fundamentals. Energy Select Sector SPDR ETFSource: FactSetAs of Sept. 9, 4 p.m. ET

Created with Highcharts 9.0.12025Sept.75.077.580.082.585.087.590.092.595.0$97.5

China’s thirst for oil may not sop up the extra supply forever. After years of restraining output, OPEC and allies like Russia are restoring 2.2 million barrels a day to the market, and could bring back more later this year. Babin thinks that fundamentals will eventually win out—but because traders are already set up for a drop, there’s less chance of triggering a major selloff.

Write to Avi Salzman at avi.salzman@barrons.com

Last Week

Markets

Labor Day went into the books, and a U.S. appeals court decision declaring President Donald Trump’s tariffs illegal rattled markets; Trump then appealed to the Supreme Court. Stocks sank as government bonds sold off globally, sending yields higher. Manufacturing fell for the sixth straight month. Gold hit a high, and the dollar fell. On Thursday, the S&P 500 index set a new high. On Friday, stocks initially rose on rate-cut hopes after weak August jobs data, then fell on economic concerns. On the week, the Dow industrials were down 0.3%, the S&P was up 0.3%, and the Nasdaq Composite rose 1.1%.

Companies

China and Russia agreed to build a second natural-gas pipeline through Mongolia, and India’s Prime Minister Modi reiterated his support for Russian energy ties. Nestlé fired CEO Laurent Freixe over “an undisclosed romantic relationship.” A ruling in the Google antitrust trial said that the company didn’t need to divest Chrome or Android. Elliott Investment Management took a $4 billion stake in PepsiCo. The Financial Times reported that Apollo Global Management is putting $5 billion into a sports investment vehicle. Tesla’s board offered Elon Musk a pay package that could be worth a trillion dollars.

Deals

Kraft Heinz is splitting into two, unraveling its 2015 merger…Sweden-based buy-now, pay-later fintech Klarna is planning a second run at a New York public offering after pulling back in April…Spirit Aviation’s Spirit Airlines declared bankruptcy again.

Next Week

Tuesday 9/9

Oracle reports quarterly results on Tuesday, while Adobe and Kroger follow suit on Thursday.

The Bureau of Labor Statistics releases its preliminary revision to employment data for the 12 months ended March 2025. Economists at Wells Fargo suggest that a net loss of 475,00 to 790,000 jobs is a “reasonable” estimate. That would put monthly jobs growth for those 12 months at 83,000 to 110,000, compared with the 149,000 currently reported. If the labor market was much weaker than previously thought, the Federal Reserve might have to cut interest rates faster to support the economy.

Thursday 9/11

The BLS releases the consumer price index for August. Consensus estimate is for a 2.9% year-over-year increase, two-tenths of a percentage point more than in July. The core CPI, which strips out food and energy prices, is expected to increase 3.1%, matching July’s data.

Friday 9/12

The University of Michigan releases the Consumer Sentiment survey for September. Economists forecast a 59.3 reading, one point more than in August but well below historical levels. Consumer expectations for the year-ahead inflation was 4.8% in the August survey.

The Numbers

280 K

Number of robots Chinese factories are installing annually. In 2023, China installed half of the world’s robots.

16 M

Number of Americans over the age of 65 who are living alone, some 28% of the age group.

70%

Percentage in a Wall Street Journal-NORC survey who said they don’t believe in the American dream.

23%

The increase in U.S. deal volumes this year over 2024, fueled by megadeals and corporate breakups.

Write to Robert Teitelman at bob.teitelman@dowjones.com