Oil prices have experienced fluctuations this month following news of reducing Middle East threats and OPEC+ proposals to increase production in August. Analysts have noted that the oil supply risk premium is falling due to easing tensions in the region.
Last week, both Brent and U.S. crude oil benchmarks saw their largest decline since March 2023 but managed to end the month with gains of 6% and 7%, respectively. Brent futures closed at $67.61 on Monday, down 16 cents, while West Texas Intermediate crude fell 41 cents to $65.11.
The recent attack on Iran's nuclear facilities by Israel caused oil prices to spike above $80 a barrel before dropping back down to $67. John Kilduff, a partner at Again Capital, noted that the ceasefire following the attack has helped to ease supply concerns and reduce the risk premium associated with oil prices.
Despite this, the Energy Information Administration reported that U.S. crude oil output reached a record 13.47 million barrels per day in April. OPEC+ is set to increase output by 411,000 barrels per day in August, following previous raises in May, June, and July. This could potentially add pressure to oil prices, according to Ole Hansen, a commodity strategist at Saxo Bank.
The upcoming OPEC+ meeting on July 6 will likely focus on discussing the proposed output increase and its potential implications on the market. Giovanni Staunovo, an analyst at UBS, believes that the market will continue to face pressure even with the expected rise in production.
Recent reports have shown that OPEC oil output grew in May, although some nations have not fully complied with their agreed-upon production limits. Saudi Arabia and the UAE, for example, increased their output by less than what was authorised by the cartel. Additionally, Kazakhstan, which has consistently exceeded OPEC+ quotas, plans to boost output at its largest oilfields in the Caspian region.
Looking ahead, economists and experts predict that Brent crude will average $67.86 a barrel in 2025, slightly up from the previous forecast of $66.98. Similarly, U.S. crude is expected to average $64.51, higher than the previous estimate of $63.35. These projections take into account the current market conditions and the potential impact of increased oil production by OPEC+.
Overall, the oil market remains dynamic and responsive to various factors such as geopolitical tensions, production increases, and global demand. Investors will continue to monitor the developments in the Middle East and OPEC+ meetings to gauge the future direction of oil prices in the coming months.