Oil News: Will OPEC Production Surge Keep Crude Oil Prices Under Pressure?

Oil Prices Plunge as OPEC+ Supply Surge and Demand Downgrades Collide

Oil markets cratered last week, with light crude futures collapsing 11.27% to $65.52, the steepest weekly decline since the 2020 demand collapse.

The selloff was driven by a potent mix of OPEC+ production acceleration, evaporating geopolitical risk premiums, and weakening demand across major consuming regions, signaling a structural pivot toward oversupply in the crude oil market.

OPEC+ Output Strategy Rattles Markets

The OPEC+ decision to accelerate production hikes by 411,000 bpd starting July rattled traders expecting gradual supply management.

Core members, including Saudi Arabia and Russia, are unwinding nearly 1 million bpd of voluntary cuts, reversing earlier discipline to counter chronic non-compliance, particularly from Kazakhstan.

Kazakhstan exceeded its quota by 390,000 bpd due to the Chevron-led Tengiz expansion, pushing total output to a record 1.86 million bpd.

This production surge hit the market precisely as demand fundamentals weakened, amplifying downside pressure and driving oil prices to their lowest since early 2024.

Demand Weakness Undercuts Oil Prices Forecast

Major agencies slashed demand growth forecasts, with the IEA cutting its outlook to 720,000 bpd and the EIA to 800,000 bpd for 2025, underscoring a demand environment unable to absorb rising supply.

China’s oil demand growth slowed sharply to just 155,000 bpd due to electric vehicle adoption, rail expansion, and a transition away from heavy industry.

In the U.S., GDP growth forecasts were revised down to 1.4%, while the Fed’s cautious rate stance at 4.25-4.50% and restrained easing outlook further limited demand optimism.

This weakening demand environment left traders questioning the sustainability of any oil prices projections above the $70 mark.

Israel-Iran Ceasefire Vaporizes Geopolitical Risk Premium

A surprise ceasefire between Israel and Iran on June 24 wiped out the geopolitical risk premium, triggering a 6% single-day price drop.

The premium, estimated at $10 per barrel during peak tensions, dissolved quickly as Strait of Hormuz flows remained intact, and Iranian exports of 1.7 million bpd were unaffected.

Tanker freight rates that had spiked during the tensions normalized rapidly, demonstrating the market’s vulnerability to geopolitical unwinding, removing a key floor under prices.

Inventory Draws Fail to Lift Market Sentiment

Despite large U.S. inventory draws, including a 5.8 million barrel EIA-reported decline, oil prices remained under pressure as markets focused on the bigger oversupply narrative.

Cushing inventories dropped near operational minimums, but refinery utilization rates fell to 86% while gasoline crack spreads slipped below five-year averages, signaling weak refining margins and constrained crude intake.

Market Outlook: Persistent Oversupply Weighs on Oil Prices

Traders should expect continued bearish pressure in the near term as OPEC+ supply growth and non-OPEC+ additions led by the U.S., Brazil, Canada, and Guyana outpace tepid demand growth, ensuring inventory builds.

While hurricane season could temporarily support prices, sustained gains appear unlikely under current fundamentals.

The removal of the geopolitical premium and slowing demand in China and the U.S. further reinforce a bearish bias in oil prices forecast until a credible rebalancing catalyst emerges.

More Information in our Economic Calendar.