Oil Prices Ease as Market Watches 4Q25 Surplus and Timespread Shifts

Oil Prices Decline Amid 4Q25 Surplus Concerns and Timespread Reversal

Oil prices edged lower Tuesday, with ICE Brent falling 0.9% as investors reacted to tariff risks ahead of the August 1 deadline and increasing forecasts for a major oil surplus in the fourth quarter of 2025 (4Q25).

Surplus Expected, But Market Signals Differ

While oil balance models continue to project a massive surplus in late 2025, the ICE Brent forward curve paints a more cautious picture. Just two months ago, the curve was in backwardation up to the November 2025 contract, shifting into contango beyond that — a clear sign that traders were pricing in oversupply.

Further Reading: Understanding Oil Market Forward Curves

Shift in Forward Curve & Spreads

As of now, however, the curve structure has shifted. It's in backwardation through early 2026, then flat across the year, before transitioning into a mild contango by 2027. This change implies a more balanced market outlook than previously expected.

• The Dec-25 – Dec-26 timespread, a key indicator of future sentiment, has narrowed from a contango of $1.80/bbl in May to a backwardation of $0.65/bbl today.
• This shift suggests that, while a surplus is still anticipated, low inventories are helping support both flat prices and timespreads.

Tariff Risks Still in Play

Uncertainty around global trade, particularly the threat of tariffs from August 1, continues to weigh on sentiment. These macroeconomic risks could impact demand outlooks, which would either reinforce or reduce the projected surplus.

Key Takeaways

• Oil prices fell 0.9%, with ICE Brent pressured by trade tensions.
• Market still forecasts a large 4Q25 surplus, but forward curve is less aggressive.
• Backwardation persists through early 2026, signaling stronger short-term demand.
• Dec-25 – Dec-26 spread flips to backwardation, hinting at tightening sentiment.
• Tariff concerns add to downside risks for oil markets.