Recent energy supply trends are still corroborating our view that the West is losing control over commodity supply, but developments to global spare capacity have likely flattened the right tail for energy markets over the coming year. Initially, this is likely to cap the upside to long-dated Brent prices but also decreases the risks of a sustained runaway rally in spot crude prices above $100/bbl over the medium-term. 

The supercycle may not be off, but the outlook is constrained by ongoing additions to global spare capacity, such that substantial price gains are likely to unleash additional supply. However, Gulf nations have managed to increase their control on global spare capacity, suggesting that the group of producers can continue to engineer a tighter market without fear of significantly losing market share to competitors.

Instead of offering structural tailwinds to prices from an evaporating pool of spare capacity, oil markets are more likely to remain range-bound at elevated prices for some time.