Despite weakening WTI fundamentals and increased US trade deals, Asian and European refineries consuming more WTI will face significant challenges due to heightened OPEC+ exports, upcoming refinery maintenance, and crude quality mismatches, analysts at Rystad Energy said.
Mukesh Sahdev, senior vice president and chief oil analyst at Rystad Energy, said in an emailed commentary:
This challenge will likely become elevated if US production grows in the second half of the year. For now, the data signals muted growth through 2026.
The weakening of West Texas Intermediate coupled with the increased demand for heavier and medium sour barrels in US refining will keep discounts of Canadian barrels (WCS) to WTI in check, likely around $12-13 a barrel, according to Rystad.
Pressure to sell
The Trump administration’s efforts to sell more WTI barrels to Europe and Asia will face three challenges.
The first is competition in Asia as OPEC+ increases supply and China’s growth slows with upcoming Q4 refinery maintenance. Secondly, competition in Europe due to refined product exports from Middle Eastern and Asian refiners and lastly the light sweet quality of WTI barrels, which is less desired compared to the strong demand for medium sour barrels.
A greater divergence in WTI discount to Brent prices is expected than the future curve’s suggestion of $3.5-3.6 per barrel.
US oil demand is expected to decrease by 500,000 barrels per day (bpd) in September, following the August peak, Rystad said.
This reduction will primarily affect gasoline and jet fuel, with the downward trend anticipated to persist through the end of the year.
Despite potential seasonal increases in distillate fuel demand towards year-end, overall crude demand from refineries is expected to fall by 900,000 bpd from its August peak through October.
This decline, with only some recovery projected towards year-end, indicates that WTI crude will likely face pressure to be exported or stored.
Some relief
Light sweet crude oil production is projected to increase by approximately 400,000 bpd year-over-year, Rystad’s estimates showed.
However, this growth will be partially offset by a decline of 100,000 bpd in heavier and medium quality crude production.
Consequently, the net growth in overall production is anticipated to be around 300,000 bpd.
This marks the second consecutive year of growth, albeit at a slower rate than the 500,000 bpd observed previously. This restrained production outlook is expected to offer some support to WTI prices, preventing significant weakening.
“The crude supply fundamentals are certainly not depicting the ‘drill-baby-drill’ slogan at the start of the new US administration,” Rystad’s Oil Vice President, Svetlana Tretyakova, said.
US commercial crude inventories are significantly low, 5.7 million barrels below the seasonal minimum since late June, due to strong summer refining demand.
This deficit is expected to narrow as demand slows post-peak season. The WTI curve shows backwardation, indicating a higher need for WTI barrels for export arbitrage over storage, Rystad said.
Supply side
Canada’s supply of heavy sour crude is expected to decrease temporarily by 100,000-200,000 bpd due to scheduled oil sands maintenance in September and October, data from Rystad showed.
Over 600,000 bpd in total outages are anticipated during this period.
Should Suncor, CNRL, Imperial, or Syncrude experience larger or prolonged outages, heavy sour supply would decrease, thereby supporting WCS pricing.
“Overall, the flow of barrels from South American countries is also on a downward trajectory,” Rystad said.
Challenges for global refineries
Meanwhile, global refinery demand for WTI crude is experiencing challenges.
OPEC+ output is intensifying competition for market share in Asia, particularly against Middle Eastern and Russian barrels.
China’s subdued refinery operations and its strategy of building up crude stocks are expected to drive Brent prices down towards the low $60s, though the duration of this trend remains uncertain.
In Europe, the refining system faces pressure from an influx of refined products from the Middle East and Asia, which in turn limits the incentive for aggressive WTI purchases by EU buyers.
This weakened global demand for WTI is further underscored by declining US exports, which have fallen from 4.6 million bpd to approximately 3.6 million bpd since early 2024, despite US trade deals aimed at boosting sales. This sustained drop in exports clearly signals a lack of robust global WTI pull.
Reduced supply from northern and southern borders will likely boost Middle Eastern imports to meet refinery quality needs, Rystad said.
Incremental WTI barrels must be exported. The WTI-Brent discount could reach over $4.0 a barrel by Q1 2026, surpassing the futures curve’s $3.6 per barrel projection.
The Ukraine-Russia crisis resolution and shifts in Russian flows may introduce unexpected outcomes.
The Norway-based agency said:
It is very unlikely that Russian barrels will flow back to Europe and US will not let European crude shorts slip back into hands of Russia.
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