(Bloomberg) -- With oil prices headed for a second annual decline and a widely expected surplus in 2025 fast approaching, bullish traders are clinging to positive signals in downstream markets.

Prices for fuel oil in Asia are at their strongest since 2022, while in Europe the cost of the ship and power-station staple is at its highest seasonal level since at least 2010. Diesel has gained in recent months while naphtha — used in plastics production — is near multiyear highs.

The strengthening of the refined products relative to the crude they are made from may signal that the demand outlook isn’t as gloomy as some say. The International Energy Agency has forecast that there will be a glut next year even if OPEC and its allies delay output hikes when they meet this weekend.

“The fundamentals aren’t looking brilliant, but I think there are a few shining lights out there,” Kieran Gallagher, managing director of Vitol Group in Bahrain, said on a podcast hosted by Dubai-based consultants Gulf Intelligence this week. Fuel oil and naphtha “have been incredibly strong,” surprising the trading house, he said.

Global oil benchmark Brent has traded in a fairly narrow band between $70 and $77 a barrel since mid-October, as pessimism over the looming surplus has been countered by geopolitical risks. A spate of Chinese purchases after the US ratcheted up sanctions on Iran-linked tankers and disruptions in producers including Kazakhstan have also led to an improvement in key timespreads that are seen as an indicator for market health.

“Spreads were a bit oversold to start off with, so some of that is catch up, especially with margins looking better,” said Kitt Haines, a global crude analyst at consultant Energy Aspects, adding that there are “certainly some Chinese buyers reducing risk around Iranian barrels.”

Spreads that recently flirted with a bearish contango structure — where prices further out are more expensive than nearer-dated supply — have rallied. The gap between the two nearest Brent contracts has widened to a bullish backwardation of 55 cents a barrel from just 7 cents at the end of September.

A final factor oil bulls like to highlight is declining stockpiles, with inventories in developed nations about 100 million barrels — just under one day of world consumption — below the five-year average, according to the IEA. That could even fuel a modest rally, according to some market watchers.