TD Securities said crude oil and petroleum product flows from the Middle East have rebounded, averaging about 7m b/d last week and starting this week near 9m b/d. The bank expects this elevated pace to persist for only a couple of weeks as barrels previously trapped on water in the Gulf clear. It added that high-frequency estimates show Middle East production has recently topped 17m b/d, with roughly 11m b/d shut in, implying a potential 2–3m b/d recovery in July if the current pace continues.
Even with higher flows, TD Securities estimates a rolling crude plus product deficit of about 3.5–4m b/d, and expects it to widen as floating supplies are drawn down and the SPR release slows into July. The note also said CTAs have been marginal sellers across the energy complex, while managed money shorts in Brent crude have reached extreme levels. It expects market tightness to persist through the summer.
Temporary Surge and Persistent Deficit
We are seeing a temporary surge in oil flows from the Middle East, reaching nearly 9 million barrels per day this week. This is causing some short-term price softness as barrels trapped in the Gulf are finally clearing. We view this as a temporary distortion, not a fundamental shift that should alter a bullish summer outlook.
Even with these elevated exports, we calculate a global oil market deficit of around 3.5 million barrels per day. The latest EIA report supports a tight market, forecasting global demand will outstrip supply by 2.9 million b/d in the third quarter. This deficit is set to deepen as the surge in floating supplies runs out and with the US Strategic Petroleum Reserve at a 40-year low, offering little backup supply.
This tightening is happening as we enter peak summer demand season, which typically adds 1.5 to 2 million b/d of consumption. Global flight data from OAG shows international airline capacity is already up 7% from this time last year, underpinning strong jet fuel demand. This seasonal demand will collide with a fundamentally undersupplied market, creating upward price pressure.
Positioning, Market Dynamics, and Strategy
We also see that while some automated funds are selling, speculative short positions among hedge funds are at extreme levels, according to the latest CFTC data. This heavy bearish positioning means any price rally could be amplified by a short squeeze, where sellers are forced to buy back contracts to cover their losses. Such a setup historically precedes sharp price increases.
Given this outlook, we believe traders should use any price weakness in the coming days to add bullish exposure. We are looking at buying call options for August and September delivery to capitalize on the expected summer tightness. For a more risk-defined strategy, bull call spreads on Brent offer an attractive way to position for higher prices through July.
