- Market participants were surprised to learn that OPEC+ could boost supply again in July.
- Oil fell after data on Wednesday revealed that crude inventories increased by 1.3 million barrels.
- Oil continues to suffer due to the likelihood of a nuclear deal between the US and Iran.
Oil prices dropped over 1% on Thursday after reports revealed a likelihood of another OPEC+ supply boost in July. At the same time, prices were weak after a surprise increase in crude inventories in the previous session.
Brent futures (Source: ICE Futures Europe)
The Organization of Petroleum Exporting Countries and its allies has been on a mission to unwind production cuts. The group started its production increases in May and is currently planning to unwind again in June. However, market participants were surprised to learn that the organization could boost supply again in July.
Already, the oil market has suffered the impacts of geopolitical tensions and trade wars brought on by Trump’s tariffs. These have dimmed the outlook for global demand. Increasing supply in a market where demand is low will only pressure prices lower.
Furthermore, oil fell after data on Wednesday revealed that crude inventories increased by 1.3 million barrels. Economists had expected a 1.3 million barrel drop. The surprise increase pointed to weak demand in the US last week.
Moreover, oil continues to suffer due to the likelihood of a nuclear deal between the US and Iran. The two countries are planning more talks later in the week. A deal will further loosen the oil market as Iran would get back to exporting its oil. However, some uncertainty remains over the outcome of these talks.
Elsewhere, geopolitical tensions remain in play, keeping a floor on oil declines. Although there has been progress in talks between Russia, the US, and Ukraine, it has stalled. A recent call between Trump and Putin revealed that Russia was still not ready to commit to a ceasefire deal. Meanwhile, reports this week revealed that Israel is planning to attack Iran. Iran is a major oil producer. Therefore, any conflict in the country could mean supply disruptions and a rally in oil prices.
Meanwhile, dollar weakness this week has supported oil by making it cheaper for foreign buyers. The dollar collapsed on Monday after Moody’s downgraded the US government’s credit rating, citing growing debt. Moreover, fiscal concerns were worsened by Trump’s tax bill that might further increase the government’s debt. As a result, demand for US assets. including the dollar, dropped.
