Recently, Bloomberg reported that five of India's largest oil refiners have made no purchases of Russian crude for December delivery, instead turning to Saudi Arabia, UAE and Iraq for crude with similar properties to Urals. The move comes after Washington sanctioned Rosneft and Lukoil while the EU adopted its 19th package of sanctions. Only Indian Oil Corporation (IOC) and Nayara Energy, in which Rosneft holds a 49% stake, have purchased crude from Russia for December.
Meanwhile, the diplomatic sensitivity of the ongoing trade talks between the U.S. and India has no doubt influenced the decision by Indian refiners to ditch Russian oil. But India is not the only entity feeling pressure by the Trump administration to stop buying Russian energy. Swiss multinational energy trading company, Gunvor, has abandoned its bid for Lukoil’s international assets--including European refineries, oilfield shares in Iraq, Mexico, Uzbekistan and Kazakhstan, and global retail stations--following Washington’s opposition to the deal.
And now commodity analysts at Standard Chartered have reported the Indian pivot away from Russia has triggered a spike in oil product prices even as crude prices remain largely unchanged. To wit, ICE Brent-Gasoil crack spreads have doubled from the $15-17/bbl range held
In the first half of the year, to a 21-month high above $32/bbl, good for a nearly 70% increase in the year-to-date. The fact that Brent prices are still trading at multi-month lows suggests that overwhelming bearish sentiment has ruled oil markets for much of the year still lingers, even as oil product markets tighten. Gasoil is a middle distillate mainly used in commercial and agricultural sectors for off-road vehicles, machinery, and generators.
Unfortunately for the oil bulls, the mid-term oil price outlook remains bleak, with U.S. oil production growth exceeding expectations. Previously, we reported that Big Oil companies have continued to ramp-up oil production, taking advantage of their improving operating leverage to squeeze more profits from low oil prices. To wit, Exxon Mobil (NYSE:XOM) has reported that it has increased hydrocarbons production to 4.7 million oil-equivalent barrels per day (boe/d), including nearly 1.7 million boe/d from the Permian and more than 700,000 boe/d from Guyana. Meanwhile, Exxon brought the Yellowtail project online in the third quarter, four months ahead of schedule. Yellowtail production is expected to clock in at 250,000 boe/d, increasing total Guyana output to over 900,000 boe/d. The story is pretty much the same at Chevron (NYSE:CVX). The United States’ second largest oil company posted record global production of 4.09 million boe/d, up 21%Y/Y, including a 27% Y/Y increase in U.S. production to a record 2.04 million boe/d.
Well, it appears that this is an industrywide trend: the Energy Information Administration has revealed that U.S. oil output will average 13.59 million barrels per day in the current year and only decline marginally to 13.58 million bpd in 2026, up from its earlier forecasts of a steeper decline to 13.53 mb/d in 2025 and 13.51 mb/d in 2026 with global oil supply outpacing fuel demand. EIA sees global crude oil stocks rising from 2.93 billion barrels in the fourth quarter of the current year to 3.18 billion barrels by the final quarter of 2026.
The EIA is in good company. Last month, StanChart finally joined the bear camp, slashing its 2026 and 2027 oil price outlook by $15 per barrel, triggered by the significant rotation in the forward curve over the past year. StanChart raised the average price of Brent crude in 2025 to $68.50/bbl from $61/bbl; however, the analysts cut the 2026 target to $63.50/bbl from $78/bbl, and 2027 prices to $67/bbl from $83/bbl, noting that the futures curve is now in contango from early-2026 onwards. Contango occurs when the futures price is higher than the spot price, suggesting that people expect the price to rise or that storage costs are high while backwardation occurs when the futures price is lower than the spot price, often indicating high immediate demand or expectations of a future price drop.
StanChart has, however, maintained their earlier prediction that low prices will eventually start to depress U.S. shale output growth.
StanChart’s forecast of looming output cuts by U.S. producers is supported by the fact that U.S. shale production costs have been rising, driven by the depletion of prime resources and the need to drill in more speculative, complex areas and formations. Analysts at Enverus have predicted that the marginal cost to produce oil in the U.S. Shale Patch could increase from ~$70 per barrel to $95 per barrel by the mid-2030s.
This shift is happening as the industry moves from easily accessible core inventory to less proven resources, leading to higher costs. Many U.S. oil producers, particularly smaller ones and those in regions like the Permian Basin, need oil prices above $65 a barrel to turn a profit on new drilling, a figure that has been rising due to inflation. Larger producers may have a lower breakeven point, sometimes in the high $50s, while older, existing wells can still be cash-flow positive at lower prices because initial drilling costs have already been covered.
By Alex Kimani for Oilprice.com
