Oil Prices Retreat on Easing Middle East Tensions and Looming OPEC+ Supply Boost
GerikSummary:
Oil prices dropped by around 1% as geopolitical risks in the Middle East declined and expectations grew for OPEC+ to increase supply in August, weighing down on the market's previous risk premium....
Market Overview and Recent Volatility
Oil markets began the week under pressure, with Brent crude futures slipping to $67.11 per barrel and U.S. West Texas Intermediate falling to $64.58 per barrel. This roughly 1% decline reflects a swift unwinding of the geopolitical risk premium that had pushed prices above $80 per barrel earlier in June. That spike was triggered by a 12-day military conflict between Israel and Iran, marked by airstrikes and nuclear tensions, but quickly reversed following a ceasefire announcement from President Donald Trump.
The easing of tensions has returned attention to fundamentals—specifically, the prospect of rising global supply. Brent and WTI both posted their steepest weekly declines since March 2023, yet they remain on track for a second consecutive monthly gain of more than 5%, underscoring the volatility of recent trading sessions.
OPEC+ Supply Outlook: Incremental Pressure
The most immediate bearish catalyst stems from inside the oil producers' cartel. According to four OPEC+ delegates, the group is expected to approve another production increase—411,000 barrels per day for August—continuing a steady reversal of output cuts that began in April. This would mark the fifth consecutive monthly production hike, reinforcing expectations that supply will outpace demand growth during the remainder of the summer.
The official OPEC+ meeting on July 6 will be closely watched, especially as these incremental increases mirror the recent May to July hikes. Traders now anticipate a more predictable supply outlook, reducing upside risk and anchoring prices near the mid-$60s range.
U.S. Supply Trends: Mixed Signals
Interestingly, the U.S. oil supply picture adds complexity to the global balance. Baker Hughes reported a drop in active U.S. oil rigs to 432—the lowest since October 2021—signaling potential headwinds for domestic production growth. While this might ordinarily support prices, the magnitude of the expected OPEC+ boost appears to overshadow it in the short term.
Nonetheless, the rig count decline could become a bullish factor later in Q3 if global demand remains stable or rises and U.S. output fails to keep pace.
Investor Sentiment and Strategic Implications
Tony Sycamore of IG Markets noted that the market has effectively "stripped out" the geopolitical premium, suggesting that traders are now more sensitive to structural supply changes than to flashpoint risks in the Middle East. This shift in focus implies that speculative long positions fueled by war fears have likely been liquidated, bringing prices back in line with demand-supply dynamics.
Looking forward, continued pressure from supply-side developments—including from both OPEC+ and non-OPEC countries—may keep oil prices capped unless macroeconomic or seasonal demand shocks emerge. A flattening of the geopolitical curve, combined with the strategic unwinding of cuts, points to a more stable (if bearish-leaning) price environment in the near term.
While June closes with modest gains, the outlook for July leans bearish as the risk premium evaporates and OPEC+ prepares to raise output further. Unless U.S. rig declines lead to meaningful supply tightening or unexpected demand surges occur, oil is likely to remain subdued in the coming weeks—hovering in the $65–$68 range, barring renewed geopolitical shocks.
Source: Reuters
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