Why I Was Bearish Brent Into 2026

Executive Summary#

Executive summary

A sound balance-sheet thesis with a failed price call

On 6 November 2025, I recommended shorting January 2026 ICE Brent futures at approximately $63–64 per barrel. The thesis was that non-OPEC supply growth, the gradual reversal of OPEC+ cuts, softer import demand and rising inventories would push Brent toward $58–60 before the contract expired.

The balance argument was reasonable and was subsequently echoed by the US Energy Information Administration, which forecast in November that Brent would average $55 in 2026. The trade itself did not work. Brent spot briefly traded close to $60 in December but did not reach the stated $58–60 target on the weekly series, and it rose sharply through January to more than $70 by month-end.

The failure was primarily one of timing and risk construction. The thesis required a slow physical surplus to dominate a short-dated contract whose price remained highly sensitive to geopolitical and positioning shocks.

Investment View#

Positioning#

Market Background#

Brent had already fallen materially from its earlier highs. That created an important challenge: the trade was not shorting an obviously expensive market. It was betting that a developing surplus would outweigh the amount of bearish information already embedded near $63–64.

The original research highlighted four sources of pressure:

Continued growth from the United States, Brazil, Canada and Guyana
OPEC+ restoring previously curtailed barrels
Chinese imports being absorbed partly into storage rather than stronger refinery runs
A mild move toward contango and rising inventories signalling weaker immediate scarcity

The variant perception was that the market still carried too much geopolitical and OPEC-discipline premium relative to the emerging physical balance.

Investment Thesis#

1. Non-OPEC Supply Was Expanding#

The central bearish force was supply outside OPEC. US output remained near record levels, while newer projects in Brazil, Canada and Guyana increased the volume of barrels competing for refinery demand.

A supply thesis becomes most powerful when production growth is relatively insensitive to a modest price decline. Projects already sanctioned and operating can continue producing even when the forward outlook weakens.

2. OPEC+ Was Gradually Returning Barrels#

OPEC+ had begun reversing some voluntary cuts during 2025. The original presentation cited intended increases of roughly 137,000 barrels per day for November and December.

The risk was that the group could pause or reverse those additions if prices weakened. This made the thesis endogenous: the more successful the short became, the greater the incentive for producers to respond.

3. Demand Growth Looked Fragile#

China’s transition toward electric transport and weaker manufacturing growth reduced confidence in the historic relationship between economic expansion and oil-import growth. Europe also remained a relatively mature demand market.

However, “declining global demand” was too strong a description. The more accurate thesis was that demand growth was insufficient to absorb supply growth at prevailing prices.

4. Inventories Were the Confirmation Signal#

The trade required visible stock builds. A surplus that exists only in forecasts may not affect a short-dated futures contract. Rising OECD and commercial inventories would provide evidence that excess barrels were moving from models into storage.

Catalysts#

Principal Risks#

The original $86 stop was not well matched to a target only $3–6 below entry. A more disciplined structure would have used a tighter risk threshold, an option spread, or a calendar expression that isolated the expected inventory build.

Outcome and Reflection#

EIA spot data provide a transparent benchmark, although they are not identical to the January ICE futures settlement.

Brent averaged $63.80 in November 2025 and $62.54 in December. The weekly spot series reached $60.83 in the week ending 19 December, close to but above the stated target range. It then reversed: $62.18 in the first week of January, $67.00 by mid-month and $70.43 in the final week.

Research Methodology#

The original thesis and trade levels come from the 6 November 2025 Queen’s Tower Capital presentation. Subsequent price assessment uses EIA Brent spot data as an independently verifiable proxy rather than claiming an exact futures P&L that was not retained.

Sources#

Originally researched and prepared by Srinivas Medida while serving as Commodities Sector Head at Queen’s Tower Capital, Imperial College Investment Society. Revised and expanded for publication on SM Research. Material public-market figures were checked against the sources listed below; contemporaneous presentation figures are identified as such. The investment view reflects the assessment made on 6 November 2025; the outcome section was updated on 19 July 2026. This material is provided for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any financial instrument.