No need for negative SNB rates

A widening supply overhang

According to International Energy Agency (IEA) estimates, oil supply has increased by 3 million barrels per day (mbd) since the end of 2024, while demand has risen by approximately 0.7 mbd.¹ The supply overhang, the result of both the faster-than-expected increase in OPEC+ supply and Ukrainian attacks on Russian refineries, will continue to widen in the coming quarters, reaching levels seen only in the aftermath of global economic crises (see Chart 1).

Chart 1. Global oil market balance (mbd)

Source: International Energy Agency and EFGAM calculations. Data as of 6 November 2025.

The decline in oil prices of around USD 15 per barrel (pb) from the end of 2024 appears limited compared to fundamentals. This likely reflects the persistence of a significant risk premium due to global geopolitical tensions, including new sanctions against Russia and Iran, and EU restrictions on imports of refined products derived from Russian oil.

Bearish outlook for crude oil prices

In this scenario, the implications for crude oil prices are bearish. As the IEA notes, the supply surplus in the first three quarters of 2025 has already led to a significant increase in oil inventories. A simple projection of global inventories over the coming quarters would see them rise to unprecedented levels both in absolute terms and in terms of days of consumption (see Chart 2). The inventory surges seen after the collapse of Lehman Brothers and the Covid crisis would be largely surpassed.

Chart 2. OECD petroleum products stocks

Source: International Energy Agency, LSEG, and EFGAM calculations. Data as of 6 November 2025.

Historically, excess oil supply and rising inventories have coincided with falling crude oil prices (see Chart 3). IEA projections suggest prices could fall by USD 80 pb over the next twelve months. Based on current prices around USD 60 pb, that would imply negative prices. Incredible as it may seem, the anomaly of a negative oil price already occurred on 20 April 2020. In the first phase of the Covid crisis, crude oil demand from US refineries collapsed by 20% while production remained essentially unchanged. The resulting surge in inventories had almost exhausted the storage capacity at Cushing, making it cheaper for traders to pay others to take the crude barrels than to bear the cost of storage.²

Chart 3. Oil market balance and WTI price changes

Source: International Energy Agency, LSEG, and EFGAM calculations. Data as of 6 November 2025. Past performance is not indicative of future results.

A rebalance, not negative prices

That very episode, however, suggests that the IEA's scenario would be unsustainable and, therefore, is unlikely to materialise. A more likely scenario is that endogenous oil market rebalancing mechanisms will operate in the coming quarters, reducing the gap between oil supply and demand. A first indication is perhaps the OPEC+ decision to suspend planned supply increases in the first three months of 2026.³ However, given the size of the oil supply and demand imbalance, a much larger adjustment is needed. But, for this to happen, a period of low prices, perhaps around or below USD 40 per barrel, will likely be needed. Notably, the WTI crude oil futures contracts anticipate its price will trade slightly above USD 60 pb until the end of 2026.

At that price level, several oil production sites, including US shale oil and deepwater extraction, would become uneconomic, reducing oil supply. Furthermore, the decline in refined product prices would stimulate demand, helping to close the supply glut. This, ultimately, will favour a gradual return of prices to more sustainable levels for marginal suppliers, including the US shale oil companies that continue to indicate a breakeven point above USD 60 pb.⁴

A prolonged period of lower crude oil prices than today will eventually allow consumers to benefit from lower energy bills. Indeed, due to reduced refining capacity following the Ukrainian attacks on Russian infrastructure, the supply of refined products has decreased. Because of increased refining margins, in the US, US gasoline prices have fallen less than 2% and diesel prices have risen by 4% since the beginning of the year, although crude oil prices fell by about 20% in due course. A similar trend is also observed in Europe, where a significant gap has opened up between the annual change in oil prices, expressed in euros, and those of refined products (see Charts 4 a and b).

Chart 4a and 4b. Eurozone petroleum product prices (year-on-year)

Source: EU Commission, LSEG, and EFGAM calculations. Data as of 6 November, 2025. Past performance is not indicative of future results.

Downside risks remain

In conclusion, it seems that for oil prices, things will have to get worse, possibly much worse, before they can get better. With geopolitical tensions and limited access to Russian refined products, refining margins are likely to remain high, curbing the pass-through of the drop in crude oil prices to consumers. Only a more pronounced fall in crude oil prices will meaningfully lower the energy bills.

¹ See International Energy Agency, Oil Market Report, October 2025.
² Cushing, Oklahoma, is the physical delivery point for WTI crude oil futures contracts.
³ See OPEC press release on 2 November 2025.
⁴ See Federal Reserve Bank of Kansas City, Energy Survey, October 2025.