Making Hay Monday – December 22nd, 2025

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David Hay

Editor

Haymaker

Making Hay Monday

Beyond the “Glut”

“Yes, OPEC prematurely unwinding its production quotas has mitigated a sharp drop in global inventories, but it has also revealed a very concerning truth–global spare capacity is vanishing, all while global oil demand growth surges higher than absolutely anyone thought possible, including us, and as supply growth falls way below consensus expectations.” -Cornerstone Analytics’ Mike Rothman, October 2025

“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” -The late, very great John Templeton

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Beyond the “Glut”: Energy as the Essential National Security Resource

One of the more consistent features of commodity markets is that forecasts tend to extrapolate the most visible data point into gospel. Oil is a current example of this inclination because, right now, the critical data point is inventories, which are allegedly rising while supply is – again, supposedly – outpacing demand. And analysts, not unreasonably, are concluding that the world is heading into a glut… if it’s not already there. However, take it from the Haymaker Team that this situation is muddled enough to once more invoke one of our favorite quotes often, though perhaps erroneously, attributed to the late Edward R. Murrow: “If you aren’t confused, you clearly don’t understand the situation”.

Official projections support the oversupply view, at least in the narrow, near-term sense. The U.S. Energy Information Administration (EIA) – which we concede is far more credible than the similarly (and confusingly) initialized IEA – currently forecasts that global oil inventories will continue to build through 2026, exerting persistent downward pressure on prices. In its latest outlook, the EIA sees Brent crude averaging near $55/barrel in early 2026, which would be around $10 to $15 below what would historically incentivize meaningful new upstream investment.

The International Energy Agency’s, the above-referenced IEA, most recent Oil Market Report tells a similar story: global oil supply is still rising, with output expected to increase by roughly three million barrels per day (bpd) in 2025 and another 2.4 million bpd in 2026. This is despite modest downward revisions. To say that we take issue with those numbers is putting it mildly; we think they’re absurdly overstated.

Providing justification for our stance, the EIA (not the IEA) has been quietly reducing its estimates of U.S. output. Further, as you can see below, Russian oil production continues to fall. A year ago, the IEA was projecting for it to increase, as it also assumed with the massively important U.S. shale basins, like the Permian.

Cornerstone Analytics

With just Russia alone, note that its output is down about 1.5 million bpd from the level prior to its ill-advised attack on Ukraine. Be aware that is an extremely big number when considering that a one-million bpd swing, up or down, typically has a major price impact. OPEC, of course, has softened the supply blow from this by ramping up its production by almost exactly the same amount. However, it is now sending clear signals its days, more like years, of goosing output are soon to be a thing of the past.

One of the world’s leading experts on the state of the oil market is Dr. Anas Alhajji. He’s no perma-oil bull, having disagreed with the ultra-optimists back in 2023 and 2024. In a podcast last month, he described a situation that has often been covered by this newsletter: the persistent and enormous upward revisions the IEA has been compelled to make to its initial demand projections. As he noted, this oddly revered body has retroactively raised its annual oil consumption numbers for the past 18 years! Please allow that to sink in – it has been wrong each and every year for almost two decades…