Oil prices experienced a fluctuation in recent days, initially falling due to the reduction in Middle East threats but then recovering as the month progressed. Analysts have noted that the oil supply risk premium has been decreasing, which could indicate a stabilizing market. However, concerns have been raised about potential price caps with the proposed OPEC+ production increases scheduled for August.
Last week saw both Brent and U.S. crude oil benchmarks experiencing their most significant drop since March 2023. Despite this, they managed to close out the month with gains of 6% and 7% respectively. Brent futures closed at $67.61 on Monday, showing a slight dip of 0.2%, while West Texas Intermediate crude fell by 0.6% to $65.11. The more active September contract for Brent closed at $66.74.
The recent tensions in the Middle East, particularly with Israel's attack on Iran's nuclear facilities, had caused oil prices to spike above $80 a barrel. However, they quickly retracted back to around $67 as a ceasefire was established. According to John Kilduff, a partner at Again Capital, this ceasefire has held up, resulting in the rapid withdrawal of the supply risk premium associated with the region.
Data from the Energy Information Administration's Petroleum Supply Monthly series revealed that U.S. crude oil output reached a record high of 13.47 million barrels per day in April. This represented a slight increase from March's output of 13.45 million barrels. Additionally, OPEC+ sources indicated that the cartel plans to increase output by 411,000 barrels per day in August, following previous increases in May, June, and July. If approved, OPEC+ will have supplied 1.78 million barrels per day this year, which equates to 1.5% of global demand.
Saxo Bank commodity strategist Ole Hansen expressed concerns about the potential price pressures resulting from increased supply, suggesting that crude oil may be vulnerable to further weakness. The upcoming OPEC+ meeting on July 6 will provide more insight into the group's production plans. UBS analyst Giovanni Staunovo noted that market pressure persists despite the uptick in output.
Recent reports by Reuters indicated that OPEC oil output grew in May, though certain countries remained within their production limits. Saudi Arabia and the UAE, for example, increased production but stayed below their authorized levels. Kazakhstan, on the other hand, has consistently exceeded its OPEC+ quotas and may further boost output at its major Caspian oilfields, potentially increasing production by 2% this year.
Looking ahead, experts and economists predict a rise in average oil prices for both Brent and U.S. crude in the coming years. In June, it was forecasted that Brent crude would average $67.86 a barrel in 2025, slightly up from May's projection of $66.98, while U.S. crude is expected to average $64.51, an increase from the previous estimate of $63.35. These projections indicate a cautious optimism for the oil market amidst ongoing uncertainties and fluctuating geopolitical dynamics.