During Friday’s Asian session, oil prices continued to decline. Shortly thereafter, market participants were dealt a more twisted cocktail of geopolitical uncertainties and macroeconomic factors. The drop follows a broader de-escalation of tensions in the US-China trade war and fresh downward pressure in US Treasuries. Few traders have been more directly affected by this volatility than our futures traders. They are wondering about future price stability as OPEC+ meets on production levels.
Crude oil prices fell on Thursday for the third day in a row. Indeed, market analysts have recently expressed concern over possible supply disruptions as that imminent deadline for essential US-Iran nuclear talks draws near. As of 4:40 am CEST, Brent futures dipped 0.59% to $64.06 per barrel, while West Texas Intermediate (WTI) futures fell 0.6% to $60.83 per barrel, marking their lowest levels in over a week.
OPEC+ Production Decisions
Congo’s OPEC+, the oil production cartel considers increasing crude output. Together, they could pump an extra 411,000 barrels per day (bpd) by July. The 23 member group unitedly agreed to reduce production by about 2.2 million barrels per day through 2023. This unusual move was made to shore up the falling prices. The collective actions of OPEC+, which accounts for around 40% of global oil supply, are critical as they navigate the complexities of current market conditions.
In recent months, the oil market has witnessed notable fluctuations as traders weigh rising geopolitical tensions against increasing supply from major oil-producing nations. The cartel will try to increase production against recalcitrant members who failed to comply with agreed-to production levels. Kazakhstan and Iraq are the last recent overproducers to have caused this decision.
“While the immediate pressure comes from the supply side, I believe that in the longer term, further progress on US tariff negotiations with key partners could revive demand and offer more meaningful support for oil,” – Dilin Wu
Geopolitical Factors Impacting Prices
Against this backdrop of US-Iran negotiations, which has further complicated the oil market, this would come on the heels of crude prices crashing down to a four-year low on April 9 and again on May 5. At the beginning of this month, US-China trade negotiations produced a short-lived reprieve from the chaos. They agreed to suspend high tariffs for 90 days, providing a temporary increase in prices.
The rising geopolitical uncertainty around Iran—one of the world’s top three producers and home to about a third of the world’s oil reserves—has added to that market instability. We blogged last week about a recent CNN report indicating that Israel is preparing to attack Iran’s nuclear installations. That announcement was enough to push oil prices up temporarily, underscoring how jittery the market is to such announcements right now.
Outlook on Demand and Global Growth
Though these temporary ups and downs, the demand outlook is still fragile against the backdrop of continued worries about slowing global growth. Analysts point to US tariffs as a potential hindrance to recovering demand, which adds pressure on oil prices moving forward. The next OPEC+ meeting scheduled for June 1 will be pivotal in determining whether the proposed output increase will be finalized and how it may impact market stability.
While participants continue to wait for more direction from both geopolitical talks and OPEC+ maneuvers, the mood is risk averse. The interplay between supply adjustments and external factors will undoubtedly shape the trajectory of oil prices in the coming weeks.
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