Crude spectrum splinters: light and heavy grades tighten, medium crudes face structural headwinds

Market & Trading Calls

• Bullish heavy crude markets in the Americas amid a tightening in balances over the summer months, resulting from declining supplies from Venezuela and Mexico. However, seasonally declining US crude demand and robust Albertan oil sands supply over Q3 is likely to weigh increasingly on WCS Hardisty crude differentials come autumn.
• Neutral to bullish on Mideast medium crude, underpinned by firm summer demand and a largely closed arbitrage window.
• Bullish light sweet WAF differentials with continued demand from West of Suez refining system planned decline in Forties exports due to August Buzzard field maintenance

Trades of the Month

• Aramco August OSPs: Aramco is likely to raise its August-loading Arab Light OSP by around $0.60–$0.70/bbl. OSPs for heavier grades, such as Arab Medium and Arab Heavy, could see more aggressive hikes of $0.70–$0.90/bbl. Arab Light OSPs into Europe and the US are likely to rise by $2.00-2.20/bbl and $0.20/bbl, respectively, reflecting the stronger market structure for medium sours in those regions.
• Long Sep/Oct WTI-Brent box, with further prompt upside for WTI relative to Brent with stronger domestic and Asian demand if Murban volumes drop. Moving through the summer, seasonal factors and maintenance periods should cause WTI-Brent to recalibrate lower, with some US capacity going offline earlier as well.

Price forecast: Market fundamentals have further deteriorated in the wake of the Israel-Iran conflict

Crude markets have entered H2 2025 on a structurally weaker footing, with geopolitical risk premia fading rapidly. Despite a brief and intense escalation between Israel and Iran in June, which drove Brent from $67/bbl to over $81/bbl in just days, prices have fully retraced. Brent is once again averaging around $67/bbl, the same level as before the conflict. With physical flows from the Mideast Gulf uninterrupted and even briefly increasing by 2 Mbd during the early days of the conflict, risk pricing has proven fleeting.

Market fundamentals have not only reasserted themselves but have also deteriorated further in the wake of the conflict. The short-lived price spike enabled a wave of hedging by US producers, particularly in the Permian, limiting downside in H2 output. As a result, we now expect US crude production to fall by just 60 kbd by December, compared to our prior forecast of 130 kbd. Our 2026 US production outlook has also been revised higher by 60 kbd, though this still implies a y/y decline of nearly 200 kbd.

On the demand side, elevated prices and macro uncertainty have led to a more cautious buying environment, particularly in Asia. The war has also impacted domestic demand in Iran and Israel, with the Tehran refinery reducing runs and the Haifa refinery shutting down for one month. Meanwhile, signals from President Trump regarding Iran’s export sanctions have introduced new upside of potentially 370 kbd for Iranian flows into China, with teapots increasingly willing to take the risk. If realised, this could add further length to balances.

OPEC+ remains committed to unwinding its 2.2 Mbd of voluntary cuts, members contributing voluntary cuts will convene virtually on 6 July. We view it very likely that the group continues with another increment of 411 kbd in August. Only five single hikes of 138 kbd will then remain to fulfil the full return of the 2.2 Mbd of cuts. The group may accelerate further additions into September and October, creating persistent downward pressure on Brent.

We forecast Brent to trend lower over Q3, with room for a $14-15/bbl decline absent a material supply shock.

Source: Kpler, ICE

Chart of the Month: Brent-Dubai spread tightens as US market firms

A sustained tightening of the WTI-Brent spread, down to levels not seen since early 2023, is reinforcing support for the Dated Brent complex. The narrowing reflects a transatlantic divergence in fundamentals, with the US market markedly tighter than the broader Atlantic Basin.

Refinery runs in the US Midwest (PADD 2) have surged to a record 4.3 Mbd, drawing crude inland and pulling Cushing stocks to their lowest seasonal levels in over five years. WTI Cushing briefly traded at a premium to WTI Houston, highlighting the strength of inland demand. Lower export availability from the US is now helping firm the Brent complex by limiting transatlantic flows, with July WTI loadings expected to fall 10% m/m.

On the global stage, the narrowing spread is attracting more WTI to Asia, where refiners face a supply gap after ADNOC trimmed Murban allocations. Midland crude flows to Asia have risen weekly since late May, suggesting WTI is increasingly competitive east of Suez.

A weaker US dollar, at a 3.5-year low, adds another bullish layer by boosting global crude demand. We expect the Brent-Dubai spread to remain supported near-term, with reduced US exports amplifying regional tightness in Europe.

Brent-WTI spread, $/bbl

Source: Argus Media

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Kpler delivers unbiased, expert-driven intelligence that helps you stay ahead of supply, demand, and market shifts. The full report is available within Insight and contains:

• Market & Trading Calls
• Price forecast: Market fundamentals have further deteriorated in the wake of the Israel-Iran conflict
• Chart of the Month: Brent-Dubai spread tightens as US market firms
• Heavy crude: Americas heavy crude markets remain tight as output from key regions falls
• Medium crude: Solid demand puts a floor under price correction
• Light crude: Midland demand to support transatlantic arb

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