Oil market is significantly oversupplied, says CIBC's Rebecca Babin

Core Viewpoint - The crude oil market is experiencing a conflict between geopolitical risks and fundamental oversupply, with fundamentals currently dominating the price dynamics, leading to a significant decline in crude prices. Geopolitical Risks - Geopolitical tensions, including conflicts involving Israel, Iran, Russia, Ukraine, and Venezuela, have escalated this year, which typically would suggest potential supply reductions in the oil market [2][5] - Despite these tensions, actual supply disruptions have not materialized, with sanctioned barrels finding buyers [3][4] Supply and Demand Dynamics - The market is oversupplied, with demand projected to grow by 1 million barrels per day in 2025, while non-OPEC supply is increasing at 1.6 million barrels per day [3][4] - OPEC's decision to unwind production cuts has further contributed to the oversupply situation [4] - The current price decline of crude oil, over 20%, indicates that fundamentals are prevailing over supply risks [5] Price Sensitivity and Production Response - If geopolitical tensions were resolved, crude prices could test levels around $50 or even the $40s, prompting a supply response from U.S. producers [8][10] - U.S. shale producers typically find $55 as the breakeven point, with production becoming uneconomical below this threshold [10][11] - Despite expectations of production cuts due to lower prices, U.S. producers have shown resilience and efficiency improvements, which may lower the breakeven point further [11][13]