By Ron Bousso, Energy Columnist

Hello Power Up readers,

The oil market has been dominated over the past week by OPEC+'s decision to sharply boost oil production in June, a surprise move that followed a steep increase in May. The announcement drove oil prices down towards $60 a barrel, as Saudi Arabia sought to send a clear message to producers that have repeatedly exceeded their output quota, particularly Kazakhstan and Iraq. They need to fall in line or face a painful price war in which Riyadh has a clear cost advantage.

Sentiment in oil markets was nevertheless given a boost by hopes of a breakthrough in the upcoming trade talks between the U.S. and China, the world's two largest oil consumers.

Meanwhile, refiners around the world are continuing to do surprisingly well, despite all the trade war uncertainty, pointing to strong on-the-ground conditions. More on this below.

I’d love to hear from you, so feel free to email me on ron.bousso@thomsonreuters.com

Global oil refineries’ strong profit margins signal healthy oil consumption today, a stark contrast with the grim long-term demand outlook.

Sentiment in the oil market has soured in recent weeks due to concerns about the impact that U.S. President Donald Trump's trade war will have on global economic activity and energy consumption. The International Energy Agency last month sharply slashed its oil demand forecast for 2025 to 730,000 barrels per day from 1.03 million bpd in March, citing trade tensions. At the same time, the surprise plan by OPEC+ to sharply increase crude production by 960,000 bpd between April and June has increased bearishness about long-term oversupply.

But looking at current conditions on the ground, one would be forgiven for thinking that the oil market is doing extremely well.

Refining margins, which reflect the overall profits a plant makes from processing crude into fuels such as gasoline and diesel, remain elevated. The Singapore margin for refining Dubai crude is around $7 a barrel, compared with $4.25 a year ago, according to data provider LSEG. Similarly, benchmark European Arab light margins are at $6 a barrel, some 36% higher than the price one year ago, while U.S. Gulf Coast Mars margins have more than doubled over the same period to near $16 a barrel.

These margins are obviously being flattered by the steep decline in oil prices this year, and they are lower than the peaks seen during the height of the energy crisis that followed Russia's invasion of Ukraine in 2022. But they remain high compared to recent history and certainly do not reflect a contraction in demand.

Importantly, U.S. refineries are operating at elevated levels, processing over 16 million bpd last week, 123,000 bpd higher than last year.

Yet Brent crude forward prices indicate that investors don’t think demand will hold up.

Graphics are provided by Reuters.

What explains this discrepancy between ample refining margins and the dour demand outlook?

One key factor is clearly that oil refineries, traders and wholesale buyers are filling up gasoline stocks ahead of the peak summer driving season and refilling depleted diesel stocks following a particularly cold winter.

And even though consumer and business confidence may be falling and anxiety about an impending economic slowdown may be spiking, oil demand is continuing to hold up well.

While U.S. diesel and heating oil stocks are significantly below their 5-year average at around 107 million barrels, consumption of around 3.7 million bpd on a 4-week average basis remains above the 5-year average despite declining by 13.5% from this year’s high, according to the latest data from the Energy Information Administration.

U.S. gasoline demand and inventories also remain near last year's levels, while commercial crude inventories are around 438 million barrels, shy of last year's level, according to the EIA.

Similarly, European diesel stocks are below their 2024 levels, according to Dutch consultancy Insights Global, while demand continues to be fairly healthy.

All this points in one direction: stronger refining margins.

But it is unclear how long this will last.

Earlier this week, I wrote that while Saudi Arabia has signalled it is willing to enter a painful price war to assert dominance over other oil producers, worsening global economic conditions mean the kingdom's standard playbook might be less effective this time around.

My colleague Clyde Russell took a deeper look into the reasons behind Saudi Arabia’s strategy, and it isn’t their claim that market conditions are healthy.

Energy transition columnist Gavin Maguire wrote that clean energy sources generated the smallest amount of Germany's electricity in over a decade so far in 2025, dealing a blow to the energy transition momentum of Europe's largest economy.

And Jamie McGeever wrote an interesting column analysing the causes and the merits of Wall Street’s recent rebound. Equity investors appear to be pricing in a benign outlook for the U.S. economy, a stark contrast with the more ominous signals coming from the oil, gold and fixed income markets.

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