Oil prices have been on a rollercoaster ride in recent weeks, with fluctuations driven by various geopolitical and economic factors. In June, oil prices initially fell as investors weighed the potential reduction of Middle East threats and the possibility of increased production from OPEC+. However, prices rebounded towards the end of the month, with Brent and U.S. crude benchmarks posting gains for the second month in a row.
Despite the recent price volatility, analysts point to a downward trend in oil supply risk premiums. This reduction in risk premiums is largely attributed to easing tensions in the Middle East, particularly following a ceasefire in the wake of the Israel-Iran conflict. According to John Kilduff, a partner at Again Capital, the rapid withdrawal of the supply risk premium has contributed to the decline in oil prices.
In addition to geopolitical factors, the Energy Information Administration’s data shows that U.S. crude oil output hit a record high of 13.47 million barrels per day in April. This increase in production has also played a role in mitigating supply concerns and putting downward pressure on prices. Moreover, OPEC+ has indicated its intention to raise output by 411,000 barrels per day in August, following previous production increases in May, June, and July. If approved, this additional supply could further suppress price gains.
Analysts like Ole Hansen, a commodity strategist at Saxo Bank, caution that the potential for increased supply could leave crude oil vulnerable to further weakness. This sentiment is echoed by Giovanni Staunovo, an analyst at UBS, who notes that market pressures persist despite efforts to ramp up production. While OPEC countries have made efforts to adhere to production cuts, Reuters reports that some nations have exceeded their quotas, offsetting the impact of these cuts.
Kazakhstan, in particular, has consistently surpassed its OPEC+ quotas and is poised to ramp up production at its largest Caspian oilfields. According to calculations based on data from KazMunayGaz, Kazakhstan’s state-owned energy company, the country could increase oil production by 2% this year. This additional supply could further weigh on global oil prices, adding to the oversupply concerns in the market.
Looking ahead, experts remain divided on the trajectory of oil prices in the coming years. A panel of 40 economists and analysts predicted that Brent crude would average $67.86 a barrel in 2025, slightly higher than the May forecast of $66.98. Similarly, the average price for U.S. crude is expected to reach $64.51, up from the previous estimate of $63.35. However, uncertainties surrounding global demand, supply dynamics, and geopolitical developments could significantly influence these projections.
In conclusion, while oil prices have experienced fluctuations in recent weeks, the overall trend points towards a reduction in supply risk premiums and increased production levels. Despite concerns about the potential for oversupply, market dynamics remain fluid, and investors will be closely monitoring geopolitical events and production decisions from major oil-producing countries. The upcoming OPEC+ meeting on July 6 will provide further insights into the future direction of oil prices and the stability of the global oil market.
