Summary:
EBC analyses how prolonged supply discipline is driving a 'higher-for-longer' oil trend, reshaping inflation paths, rates, and global capital flows.
As global central banks begin to loosen monetary policy, another force is working in reverse: constrained oil supply. Key energy producers are maintaining voluntary cuts through the end of 2025, even as demand builds and inventories remain lean.
This disciplined supply strategy has set a price floor, with Brent crude trading near US $68.39 per barrel, down 1.2% after the latest EU sanctions, indicating that markets don't expect significant disruptions to supply. While recent volatility reflects short-term profit-taking and trade jitters, forecasts from Goldman Sachs and the IEA point to a potential rebound in oil prices as demand recovers later in 2025.
"We're in a world where commodity supply decisions can rival, or even override, central bank influence," said David Barrett, CEO of EBC Financial Group (UK) Ltd. "Overlooking these dynamics risks mispricing entire asset classes—from FX and bonds to inflation-linked securities."
Recent demand analysis indicates that OPEC and the IEA forecasts for 2025 may be too pessimistic: despite projecting growth of 700,000–1.29 million bpd—the slowest since 2009—Asia's crude imports have actually jumped by around 510,000 bpd in H1 2025. Meanwhile, the IEA warns that current projections could understate real demand as global travel and industrial activity pick up.
Even small shifts in oil prices matter. Transport and food costs are rising across import-dependent economies. In Europe, where the ECB just began its first rate cut cycle since 2019, persistent energy inflation threatens to delay future easing. In the U.S., continued fuel strength could complicate policy decisions tied to CPI and trade concerns.
Central banks in countries like India, Thailand, and the Philippines, with cooled but fragile inflation, may hold off on rate cuts as imported energy costs remain elevated.
Oil-exporting countries with strong fiscal buffers have seen an upside from elevated crude prices, improving their terms of trade and boosting revenue streams. Meanwhile, oil-importing economies are grappling with weakening currencies, widened current-account deficits, and renewed inflation volatility.
In global financial markets, breakeven inflation expectations in U.S. Treasury markets have firmed, with 5-year breakevens rising to around 2.5%—their highest in months. Currency markets are also reacting, with petro-currencies such as the Canadian dollar (up 0.3% in June) and the Norwegian krone outperforming peers. Investors are increasingly rotating back into energy-linked equities, driven by shifting demand forecasts and improved sentiment in oil markets.
For traders, these dynamics present both opportunity and urgency. As oil remains a central driver of inflation expectations, sharp movements in crude prices can ripple across FX, bond, and equity markets. Monitoring petro-currencies like the CAD and NOK can offer directional cues for energy sentiment, while inflation-linked assets—such as TIPS or commodity ETFs—become more attractive hedging tools.
The firming of breakeven rates suggests markets are reassessing long-term inflation risks, making positioning around rate-sensitive assets and duration trades even more critical. With central banks walking a tightrope between growth and inflation, traders who track both commodity flows and policy divergence can better anticipate market pivots—and avoid being caught on the wrong side of a "higher-for-longer" energy regime.
Disclaimer: This article reflects the observations of EBC Financial Group and all its global entities. It is not financial or investment advice. Trading in commodities and foreign exchange (FX) involves significant risk of loss, potentially exceeding your initial investment. Consult a qualified financial advisor before making any trading or investment decisions, as EBC Financial Group and its entities are not liable for any damages arising from reliance on this information.
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