Oil prices plummeted by more than $7 on Monday, collapsed by OPEC+’s move to bring production increases forward in an uncertain demand environment. Sources within the cartel told Reuters that OPEC+ could completely reverse its voluntary production cuts by the end of October. This step will be only as good as member compliance – or lack thereof – allows. The federal sector has increased its production for the second month in a row. After the slight production hiccup in May, production surged back with style in June, rising by 411,000 bpd.
The market is already starting to feel the effects of these output increases. Brent crude futures were down $2.21, or 3.61%, to $59.08 a barrel by 0653 GMT. Same goes for U.S. West Texas Intermediate (WTI) crude, which was down $2.29, or 3.93%, to $56.00 a barrel. This 14.5% decline represents the largest weekly drop since 2020, with both Brent and WTI contracts closing at their lowest respective prices since early April.
OPEC+ agreed to pump considerably more oil than expected. The total combined hikes for April, May and June now amount to 960,000 bpd, undoing 44% of the 2.2 million bpd cuts that have been in effect since 2022. The latest adjustments highlight the coalition’s efforts to address market dynamics as global oil supply appears poised to outpace demand.
For the first time since December 2023 the market has moved into a contango phase. Today, the six-month Brent price spread is an 11-cent backwardation per barrel, which indicates that oil today is cheaper than it will be over the next several months. ING analysts, under the direction of Warren Patterson, predict the global oil balance will move deeper into surplus. This is a change that will phase in over 2025.
Tim Evans, founder of Evans on Energy, commented on the situation:
“The May 3 OPEC+ decision to raise production quotas another 411,000 bpd for June adds to the market expectation that the global supply/demand balance is moving to a surplus.”
The geopolitical tensions in the Middle East only add to the complexity of this supply surge backdrop. Israeli Prime Minister Benjamin Netanyahu has promised a strong response from Israel against Iran. This announcement follows an upsurge in hostilities, including a missile launched by the Tehran-supported Houthi movement that landed next to Israel’s primary airport. Iranian Defence Minister Aziz Nasirzadeh made a thinly veiled threat. He challenged that assumption by insisting that Tehran would counterattack and impose heavy costs if the United States or Israel attacked.
Analysts warn about the murky demand picture that hangs over the oil market. Amarpreet Singh, an analyst at Barclays, noted:
“We now expect OPEC+ to phase out the additional voluntary adjustments by October 2025 but also expect slightly slower U.S. oil output growth.”
Warren Patterson added further insight into the volatile environment:
“The oil market has been dealing with significant demand uncertainty amid tariff risks. This change in OPEC+ policy adds to uncertainty on the supply side.”
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