The recent news of oil prices falling due to reduced Middle East threats and an upcoming increase in OPEC+ production has caused some concern among analysts. Despite this dip, experts are predicting that the oil supply risk premium may continue to decline, leading to potential price fluctuations in the near future.
The decline in oil prices last week was the sharpest drop since March 2023, but overall, both Brent and U.S. crude oil benchmarks saw gains for the second consecutive month. Brent futures closed at $67.61 on Monday, down slightly from the previous day's close. The more active September contract for Brent closed at $66.74. Meanwhile, West Texas Intermediate crude fell to $65.11, marking a small decrease in prices.
The recent ceasefire between Israel and Iran following an attack on Iran's nuclear facilities has contributed to the decrease in oil prices. John Kilduff, a partner at Again Capital, noted that the supply risk premium is dwindling as stability returns to the region. Furthermore, the Energy Information Administration's data on U.S. crude oil output reaching a record high of 13.47 million barrels per day in April suggests that there is no immediate shortage of oil supply.
In light of recent events, OPEC+ has announced plans to increase oil output by 411,000 barrels per day in August, following similar increases in May, June, and July. Despite these production boosts, analysts like Ole Hansen of Saxo Bank believe that the potential supply pressure remains undervalued, leaving crude oil prices vulnerable to further declines.
Market pressure persists as some OPEC countries, like Saudi Arabia and the UAE, have been producing less than authorized, as reported by Reuters. Additionally, Kazakhstan, which has consistently exceeded its OPEC+ quotas, may see further increases in oil production this year. These developments could have a significant impact on global oil prices in the coming months.
Looking ahead, experts predict that Brent crude will average $67.86 a barrel in 2025, slightly higher than the previous forecast. Similarly, U.S. crude oil prices are expected to rise to an average of $64.51 per barrel by the end of the year. These projections indicate that despite current fluctuations in oil prices, the overall trend is towards a modest increase in the near future.
Overall, the recent dip in oil prices can be attributed to a combination of reduced Middle East threats, increased OPEC+ production, and overall market trends. While some analysts remain cautious about the potential for further declines, others see opportunities for future growth in the oil market. As OPEC+ continues to monitor production levels and global demand, the oil industry may experience further volatility in the months to come.