Ads
Oil prices experienced fluctuations in the market recently with concerns about reducing threats in the Middle East and the potential production increase from OPEC+ in August. This led to a slight decrease in oil prices on Monday, following a period of volatility in the market.
Last week, both Brent and U.S. crude oil benchmarks saw their biggest drop since March 2023, but managed to end the month on a positive note with gains of 6% and 7% respectively. The Brent futures closed at $67.61 on Monday, down 16 cents or 0.2%, while the more active September contract closed at $66.74. West Texas Intermediate crude also fell by 41 cents, or 0.6%, to $65.11.
The recent escalation in tensions between Israel and Iran had pushed oil prices above $80 a barrel, but the situation has since calmed down following a ceasefire, leading to a reduction in the supply risk premium. According to John Kilduff, a partner at Again Capital, the supply risk premium is quickly being withdrawn as the ceasefire holds up.
Additionally, the Energy Information Administration reported that U.S. crude oil output reached a record high of 13.47 million barrels per day in April, a slight increase from the previous month. This has added to concerns about a potential oversupply in the market.
OPEC+ is also set to increase its output by 411,000 barrels per day in August, following previous increases in May, June, and July. This could potentially add to the pressure on oil prices, as the market remains cautious about the impact of increased production on prices.
Despite the efforts to increase output, Reuters reported that OPEC oil output grew in May, although some countries that had exceeded their limits imposed by OPEC+ were not able to ramp up production as expected. Saudi Arabia and the UAE, for example, increased their output by less than what was authorized.
Kazakhstan, another country that has consistently exceeded its quotas, is also planning to boost output at its largest Caspian oilfields, potentially increasing oil production by 2% this year. This could further add to the supply pressure in the market, leading to concerns about oversupply.
In light of these developments, market analysts like Ole Hansen from Saxo Bank believe that the potential supply pressure remains under-priced, leaving crude oil vulnerable to further weaknesses in the market. The upcoming meeting of oil producers on July 6 will be closely watched for any further developments that could impact oil prices in the coming months.
Looking ahead, a group of 40 economists and experts have predicted that Brent crude will average $67.86 a barrel in 2025, slightly higher than the previous estimate. Similarly, U.S. crude is expected to average $64.51, showing a slight increase from the previous forecast. These predictions reflect the ongoing uncertainties in the oil market and the challenges that lie ahead for oil producers and consumers alike.
