Oil prices experienced significant fluctuations in the month of June, initially falling due to decreasing Middle East threats and then recovering as the market reacted to news of an increase in OPEC+ production. Experts observed a decline in the oil supply risk premium, with a potential for further decreases if the proposed OPEC+ output boost is implemented.
Last week, both Brent and U.S. crude oil benchmarks recorded their most substantial decline since March 2023 but ended the month with gains of 6% and 7%, respectively. Brent futures closed at $67.61 on Monday, down by 0.2%, while West Texas Intermediate crude fell to $65.11. Despite the fluctuations, oil prices have remained relatively stable amid changing geopolitical dynamics.
The temporary rise in oil prices above $80 a barrel following Israel's attack on Iran's nuclear facilities was short-lived as a ceasefire was quickly established, easing supply concerns. John Kilduff, partner at Again Capital, noted that the swift resolution of the conflict contributed to the rapid withdrawal of the supply risk premium in the market.
In contrast to the geopolitical tensions, the Energy Information Administration's Petroleum Supply Monthly report indicated a record-high U.S. crude oil output of 13.47 million barrels per day in April. This data, combined with OPEC+'s decision to increase production by 411,000 barrels per day in August, has raised concerns about potential oversupply and its impact on oil prices.
Saxo Bank commodity strategist Ole Hansen warned that the market may be underestimating the supply pressure, leaving crude oil vulnerable to further price declines. Despite the anticipated increase in output by OPEC+, analysts like Giovanni Staunovo from UBS believe that the market will continue to face pressure, especially if countries fail to comply with their production limits.
Recent reports have shown that OPEC oil output increased in May, although some member countries, notably Saudi Arabia and the UAE, did not raise production as much as permitted. Moreover, nations like Kazakhstan, which have consistently exceeded their OPEC+ quotas, are looking to ramp up output from their largest oilfields in the Caspian region, potentially adding to the global supply.
Looking ahead, experts predict that Brent crude will average $67.86 a barrel in 2025, slightly higher than May's forecast of $66.98. Similarly, U.S. crude is expected to average $64.51, up from $63.35. These projections indicate a cautious optimism about the future trajectory of oil prices, which will be influenced by various factors, including production levels, geopolitical events, and global demand.
As OPEC+ members prepare to convene on July 6 to discuss further production adjustments, market participants will be closely monitoring the decisions made by the key oil-producing nations. The delicate balance between supply and demand will continue to shape the price movements in the oil market, necessitating a nuanced understanding of the geopolitical landscape and its implications for the energy sector.