Oil & gas (AO) | The Chinese contango and a potential 5mb/d glut next year

Research evidence excerpt

Oil & gas (AO) | The Chinese contango and a potential 5mb/d glut next year

News comment

Release date: 01 July 2026

Bertrand Hodée

Head of Oil & Gas

+33 1 70 98 85 83

Oil & gas bhodee@keplercheuvreux.com

Europe

The Chinese contango and a potential 5mb/d glut next year

Key points:

More data continues to point to a surge in oil exports (including "dark" transits) through the Strait of Hormuz in June. Tit-for-tat

US-Iran attacks appear to be over for now, but the clarification of Article 5 - including responsibility during the initial 30-day

period for defining possible routes into and out of Hormuz and the demining process - remains a source of concern.

China tactically reduced its oil imports sharply in May and may continue to do so through July.

Last week, the Brent forward curve moved into contango on the very short end of the curve, with Brent 2-month (September

delivery) trading above Brent 1-month (August delivery), suggesting an oversupply situation. We doubt the market is currently in

oversupply, but the absence of Chinese buyers is possibly creating an oversupply situation outside China.

Assuming a progressive re-opening of Hormuz through the summer, we now expect the oil market to show a deficit of just 1mb/d

in 2026. In other words, we now expect the drawdown in global oil inventories in 2026 to be lower than the build in inventories

recorded in 2025.

We leave our oil price assumptions unchanged for 2027 and 2028 (at USD75/bbl and USD70/bbl, respectively) and maintain our

wait-and-see approach, although we continue to highlight significant downside risks should Middle East oil exports become

unconstrained in 2027.

The potential oversupply we now see in 2027 (4.9mb/d vs 4.1mb/d in our previous early-June modelling) is even greater than