Why Is Oil So Cheap? With David Wech

Podcast Briefing: an Edited Q&A

The following Q&A has been adapted from the HC Commodities Podcast and edited for clarity and length.

Supply resilience vs demand softness

Paul Chapman: Oil markets are dealing with multiple geopolitical shocks. Why, in your view, is oil still relatively cheap?

David Wech: There are a few key elements at play. One is the strength of the US supply. The US market has responded quickly and provided barrels when needed. Another factor is the resilience of global supply more broadly. Even in situations where you would expect disruption, flows have continued.
At the same time, what really stands out in the data is that demand has not been as strong as headline numbers suggest. Our data generally indicate that oil demand has likely underperformed over the last one or two years compared with what is widely reported. That combination of resilient supply and softer underlying demand helps explain why prices remain relatively subdued.

Reading beyond headline demand data

Paul Chapman: You mentioned that demand may be weaker than reported. What are you seeing in the underlying data?

David Wech: One way we track this is by looking at global import ports. These are ports that only receive cargoes rather than export them. When you look at flows of gasoline and diesel into those locations, particularly gasoline, the trend has been lower over the past couple of years.

So from that perspective, it is difficult to argue that demand has been particularly strong. There are pockets of growth, for example, LPG flows from the US into Asia, feeding petrochemicals. But in aggregate, particularly for transport fuels, the picture is softer.

China as the dominant market driver

Paul Chapman: How central is China in explaining what we’re seeing in oil markets right now?

David Wech: It is probably the most crucial individual factor at the moment. We are seeing much lower imports from China, and that is clearly weighing on the market. In the short term, a lot of that is driven by the current crisis environment. But it also ties into a broader trend where demand growth has not been as strong as expected.

China’s absence from the spot market is very visible. And when the world’s largest importer steps back in that way, it naturally has a significant impact on pricing and market balance.

Structural shifts and energy transition risk

Paul Chapman: There seems to be a divergence between long-term forecasts and what some of the data is signalling. Are we underestimating structural change?

David Wech: That is a very real possibility. There is a growing body of evidence suggesting that demand may already be weaker than expected. At the same time, geopolitical events may accelerate structural changes.

For example, the current crisis could act as an accelerant for the energy transition. Particularly in Europe and parts of Asia, policymakers are likely to place greater emphasis on electrification, diversification of energy sources, and domestic supply. Over time, that can materially reduce oil demand faster than some forecasts currently assume.

Short-term signals traders should watch

Paul Chapman: If you were to highlight the most important things to watch in the near term, what would they be?

David Wech: The key signals are coming from the product side of the market. If there is going to be a meaningful tightening, you would expect to see it reflected in gasoline or diesel cracks. Without that, it is difficult to see a sustained upside in demand.

Another important factor is stock movements. Despite geopolitical tensions, global inventories have not been drawn down significantly. That has been quite surprising, and it is something we continue to monitor closely. If that changes, it could shift the market quite quickly.

China’s return as a price catalyst

Paul Chapman: So much seems to hinge on China. What would indicate a shift?

David Wech: The key question is when China returns to the spot market. At the moment, the absence is very clear. There is no guarantee it continues indefinitely.

The trigger will likely be domestic stock levels. At some point, if inventories draw down sufficiently, decision-makers may instruct companies to start buying again. And once that happens, it would be a significant catalyst for higher prices.

Data visibility and market confidence

Paul Chapman: There is often scepticism about visibility into Chinese inventories. How confident can we be in the data?

David Wech: A large portion of China's storage is in floating-roof tanks, which can be monitored using satellite imagery. Those tanks have not drawn down in a meaningful way, and that is a clear signal.

There are uncertainties around underground storage and other parts of the system that are harder to observe. But when you combine storage data with global flow data and shipping data, you can build a very consistent picture of what is happening in real time. That gives us a high degree of confidence in the broader trends.

Market outlook and direction of travel

Paul Chapman: Stepping back, how should market participants think about the direction of travel from here?

David Wech: The key takeaway is that the market is currently defined by a mix of resilient supply and weaker‑than‑expected demand. China’s role remains critical, and any change there could quickly shift the balance.

At the same time, there are longer-term structural forces at play. The energy transition and changes in policy direction, particularly in major consuming regions, could continue to weigh on demand growth. So while short-term dynamics may shift quickly, the medium-term outlook is shaped by these broader trends.