Oil Prices Dip Amid Easing Tensions and Anticipated Supply Boost
Oil prices slightly decreased on Monday as traders considered a reduction in Middle East geopolitical risks and the likelihood of OPEC+ increasing its oil production in August.
Both Brent and U.S. crude oil benchmarks had their most significant weekly drops since March 2023 last week. However, they still saw gains of about 6% and 7% respectively for the second consecutive month. On Monday, Brent futures fell 16 cents (0.2%) to settle at $67.61 a barrel, with the more active September contract closing at $66.74. U.S. West Texas Intermediate (WTI) crude dropped 41 cents (0.6%) to $65.11 a barrel.
The recent 12-day conflict that began on June 13, with Israel targeting Iran’s nuclear facilities, had initially pushed oil prices above $80 a barrel before they retreated to $67. According to John Kilduff, a partner at Again Capital, the quick ceasefire has led to a rapid withdrawal of the supply risk premium that was built into prices.
Record U.S. Production and OPEC+ Plans Influence Market
Adding to the downward pressure, U.S. crude oil production reached a record 13.47 million barrels per day in April, slightly up from 13.45 million bpd in March, as reported by the Energy Information Administration. This record output is contributing to the bearish sentiment in the market.
Meanwhile, OPEC+ is expected to increase its production by 411,000 barrels per day in August, following similar increases in May, June, and July, according to sources. If agreed, this would bring the total supply increase from OPEC+ to 1.78 million bpd this year, which is more than 1.5% of the total global demand. Ole Hansen, head of commodity strategy at Saxo Bank, suggests this potential supply pressure is “under-priced,” leaving crude vulnerable to further weakness. The oil producer group is scheduled to meet again on July 6.
Despite rising output, some market tightness persists, noted UBS analyst Giovanni Staunovo. A Reuters survey indicated that OPEC’s oil output increased in May, but the gains were limited by cuts from countries that had previously exceeded their quotas. Saudi Arabia and the United Arab Emirates also made smaller increases than permitted. Kazakhstan, a country that has consistently exceeded its OPEC+ quotas, might even surpass its previous oil production forecast by approximately 2% this year due to upgrades at its largest Caspian oilfields.
A June survey of economists and analysts projected Brent crude to average $67.86 per barrel in 2025, an increase from May’s forecast of $66.98. U.S. crude is expected to average $64.51, up from last month’s estimate of $63.35.
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