Don't Short Oil

Wall Street consensus has Brent at $56 on a 3.8 million barrel surplus. That surplus counts Chinese military reserves as commercial inventory, shipping routes as supply, and uses a demand model wrong

The consensus on oil has never been this unified. The IEA projects a 3.8 million barrel per day surplus in 2026, so large it would be “unprecedented in annual terms.” Goldman Sachs sees Brent averaging $56. Wall Street consensus sits at roughly $59. If you’re an allocator reading your morning research, the message is unambiguous: oil is cooked.

I think the consensus is carrying a systematic error worth approximately 200 million barrels. And I can show you exactly where it comes from.

The IEA’s terrifying 477 million barrel headline build for 2025 falls apart under decomposition. It counts 111 million barrels of Chinese strategic reserves, barrels locked away under a security-first mandate with a single test release in SPR history, as commercial surplus. It counts 248 million barrels of “oil on water” as oversupply, when more than half of the increase reflects Brazilian crude taking the long route to China rather than the short route to Houston. And it relies on a demand model that has underestimated global consumption for 18 consecutive years, a pattern the IEA’s own 330,000 b/d upward revision of 2022-2024 data confirmed just last May.

Once you strip out the misclassified reserves, the cartographic illusions, and the structural demand blindness, the real surplus is roughly a quarter of what the headlines describe. And that’s before you account for the 2.7 million b/d of OPEC+ supply that disappeared in January, the 700,000-900,000 b/d Kazakhstan lost to CPC terminal strikes, the structural rerouting of Indian crude away from Russia, or the geopolitical risk premium that Rapidan now prices at 75% probability of a US strike on Iran.

This piece is a full teardown of the surplus narrative: the barrel-by-barrel ledger rebalancing, the supply disruptions nobody is pricing, why OPEC+’s March 1 decision is less bearish than assumed, the US shale plateau, and the reflexivity problem that makes narrative itself a market fundamental. The conclusion is a $60-72 Brent range for 2026 with asymmetric upside, roughly $10 above where consensus expects to land.

Why you should be reading TSCS

Over 4,800 investors and analysts read TSCS for the research their Bloomberg terminal doesn't give them: deep, independent analysis on equity and macro themes, built from primary sources and written without conflicts. This piece alone dismantles roughly 200 million barrels of consensus assumptions. The full teardown, including the barrel-by-barrel ledger, the supply disruption catalogue, and the $60-72 range thesis, is below. Subscribe to TSCS to read it.

Let’s get into it.