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Oil prices experienced a slight drop on Monday as investors contemplated the diminishing threats in the Middle East and the potential increase in oil production by OPEC+ in August. Despite this slight setback, the oil benchmarks for both Brent and U.S. crude managed to climb by 6% and 7% respectively, marking their second consecutive month of gains after last week’s downfall, which was the most significant since March 2023. Brent futures closed at $67.61 on Monday, a decrease of 0.2%, while the more active September contract settled at $66.74. Meanwhile, West Texas Intermediate crude fell by 0.6% to $65.11.
The recent drop in oil prices can mainly be attributed to the calming of tensions in the Middle East following Israel’s attack on Iran’s nuclear facilities on June 13. The ceasefire that was quickly established after the attack has been holding up, which has led to the withdrawal of the supply risk premium at a rapid pace. John Kilduff, a partner at Again Capital, emphasized the impact of this ceasefire on the oil market, stating that the supply risk premium is continuously diminishing.
Furthermore, the Energy Information Administration’s Petroleum Supply Monthly series reported a record increase in U.S. crude oil output to 13.47 million barrels per day in April, up from 13.45 million in March. This surge in production adds further pressure to the oil market, especially with the plans of OPEC+ to increase output by 411,000 barrels per day in August. Analysts have expressed concerns that this additional supply could potentially cap any further price gains in the near future.
Ole Hansen, a commodity strategist at Saxo Bank, highlighted the underappreciated potential supply pressure that could lead to further weakness in crude oil prices. Despite the proposed output increase by OPEC+, market pressures are expected to persist, as evidenced by reports of OPEC oil output growing in May. However, certain nations within the OPEC+ alliance have shown restraint in exceeding their production limits, such as Saudi Arabia and the UAE.
On the other hand, Kazakhstan, which has consistently surpassed its OPEC+ quotas, is expected to boost output at its largest Caspian oilfields and increase oil production by 2% this year. This further complicates the dynamic of the oil market and adds to the uncertainty surrounding future price movements. As oil producers prepare to meet again on July 6, market watchers will closely monitor any developments that could impact oil prices in the coming months.
Looking ahead, economists and experts predict a modest increase in oil prices, with Brent crude expected to average $67.86 a barrel in 2025, slightly higher than May’s forecast of $66.98. Similarly, U.S. crude is projected to average $64.51, up from $63.35. Despite the recent volatility in the oil market, analysts remain cautiously optimistic about the future trajectory of oil prices, acknowledging the various factors at play that could influence price movements in the months to come.
