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Oil prices experienced a tumultuous month as they initially fell due to reduced Middle East threats but then recovered as the market reacted to news of a potential increase in oil production by OPEC+. Analysts have observed a decrease in the oil supply risk premium as geopolitical tensions in the Middle East have eased. Despite this, there are concerns that proposed production increases by OPEC+ may cap price gains in the near future.
At the end of June, Brent and U.S. crude oil benchmarks saw their largest drop since March 2023, only to bounce back and register gains for the second consecutive month. Brent futures expired at $67.61 on Monday, a decrease of 0.2%, while the more active September contract closed at $66.74. West Texas Intermediate crude also fell by 0.6% to $65.11.
The recent decline in oil prices can be attributed to a number of factors, including the resolution of conflicts in the Middle East. Following Israel’s attack on Iran’s nuclear facilities on June 13, oil prices briefly spiked above $80 a barrel before quickly retracting to $67. This ceasefire has contributed to a reduction in the supply risk premium, as noted by John Kilduff of Again Capital.
Data from the Energy Information Administration’s Petroleum Supply Monthly series shows that U.S. crude oil output reached a record 13.47 million barrels per day in April. Analysts are closely monitoring OPEC+ discussions regarding a proposed increase in output by 411,000 barrels per day in August. The cartel has already raised production levels in May, June, and July, supplying 1.78 million barrels per day in total this year.
Saxo Bank commodity strategist Ole Hansen believes that the potential supply pressure from increased output remains under-priced, leaving crude oil susceptible to further weakness. OPEC+ members are set to convene on July 6 to discuss the next steps in managing oil production. Despite the anticipated increase in output, market pressure continues to persist as demand and supply dynamics evolve.
Recent reports have indicated that OPEC oil output grew in May, although certain nations have adhered to their production limits, including Saudi Arabia and the UAE. Kazakhstan, on the other hand, has consistently surpassed its OPEC+ quotas and is expected to increase oil production by 2% this year at its Caspian oilfields.
Looking ahead, industry experts predict that Brent crude will average $67.86 a barrel in 2025, slightly higher than the previous estimate of $66.98. Similarly, U.S. crude is projected to average $64.51, up from $63.35. This forecast reflects the ongoing volatility and uncertainty in the oil market, influenced by factors such as geopolitical tensions, production levels, and global demand trends.
In conclusion, the recent fluctuations in oil prices highlight the complex nature of the energy market and the various factors that influence price movements. While reduced Middle East threats have contributed to a decrease in the oil supply risk premium, concerns remain regarding the potential impact of OPEC+ production increases. As industry players continue to monitor developments in the oil market, adaptability and strategic decision-making will be crucial in navigating this ever-changing landscape.
