OPEC+ did what was expected last weekend by announcing another increase in oil production. However, prices rose unexpectedly, driven by concerns over supply disruptions and steady demand.
The eight OPEC+ members who had limited their crude output agreed to add 411,000 barrels per day in July, following similar hikes in May and June. Before the announcement, media speculation that OPEC+ might raise output more aggressively had weakened prices. But the official decision had little effect on prices. Instead, events around the OPEC+ meeting pushed prices higher.
A Ukrainian drone attack targeted sites inside Russia, including parts of its oil infrastructure. This raised fears of supply disruptions. At the same time, hopes for a revived U.S.-Iran nuclear deal faded. Reports say Iran is likely to reject the latest U.S. proposal, keeping sanctions on Iran’s oil industry in place. Iran refused to halt uranium enrichment, a key U.S. demand, making a deal unlikely.
Adding to supply concerns, wildfires in Alberta, Canada, forced production cuts of more than 340,000 barrels per day—about 7% of the region’s output. These disruptions helped push prices up and suggest oil demand remains stronger than some expect.
Reuters columnist Clyde Russell pointed out that oil imports into Asia have dropped this year compared to last year. He questioned whether OPEC+ could find buyers for the extra oil, given a recent decline in Asian imports. But recent geopolitical risks and supply cuts mean there is still demand for more oil at better prices.
The oil market is showing that real-world events matter more than forecasts about demand and supply balance. Demand for oil has stayed strong since the end of the pandemic lockdowns, even with China’s reduced crude appetite.
ING commodity analysts said demand is likely to rise with the summer season, supporting prices. Goldman Sachs also acknowledged that seasonal demand patterns point to stronger prices ahead.
Goldman Sachs noted that “tight spot oil fundamentals,” stronger global activity, and summer demand make a sharp slowdown in oil demand unlikely. This suggests OPEC+ will likely continue raising production when it meets in July.
In short, geopolitics and the summer driving season are keeping oil prices supported. With oil affordable and supply uncertain, prices are likely to stay firm.
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