Uneasy stability in oil markets amid OPEC+ moves, Middle East ceasefire

The Star

22-07-2025

Oil is going through a period of uneasy calm, but market players are pondering if it's a trend that would last.
The higher-than-expected rise in OPEC+ production quotas for August, combined with a ceasefire between Israel and Iran, has provided oil markets some breathing space and introduced a bearish sentiment to prices, but rising expectations of potential additional sanctions on Russia by Washington could soon change the landscape and keep markets on edge.
But one thing is becoming increasingly clear – even if geopolitics takes an ugly turn, it may not be able to overshadow the impact on fast-growing global supplies amid relatively slower demand.
Amid heightened tensions in the Middle East recently, oil markets experienced a peak in the fear premium when Dated Brent surged past US$80 per barrel. However, in the third quarter of this year, S&P Global Commodity Insights expects Dated Brent to decline to the mid-US$60s per barrel. And by the end of the year, strong oil supply growth relative to demand is expected to push Dated Brent into the US$50s/b.
The eight members of the OPEC+ alliance implementing voluntary crude output cuts agreed July 5 to hike their production quotas by 548,000 b/d in August, accelerating their claw back of market share. The group was of the view that members were encouraged by healthy market fundamentals, which was reflected in low oil inventories. The increase is 33% more than the previously agreed monthly increases of 411,000 b/d that the voluntary cutters had agreed in their previous three meetings. And there were expectations that the group would repeat the same for August.
The alliance is bringing barrels back to market at a time of high seasonal demand, with the US entering its driving season while Middle East countries burn more oil to meet electricity needs.
But despite this, oil markets are heading towards an oversupply scenario in the second half of 2025. Commodity Insights forecasts that the market could witness a surplus of more than 1 million b/d by the end of the year if OPEC+ members fully unwind the voluntary production cuts by October.
Global commercial inventories may rise by over 600,000 b/d in August, escalating to an average of 1.7 million b/d from September to December, influenced in part by actual OPEC+ production levels. The sustained increase in OPEC+ output is likely to exert further bearish pressure on oil prices, particularly post-summer.
Saudi Arabia's crude exports notably increased by 475,000 b/d to 6.17 million b/d in June, accounting for 90% of the total month-over-month growth among eight OPEC+ nations. This growth stemmed from inventory draws and increased production, with refinery runs and crude burn in the kingdom estimated to have risen by 140,000 b/d and 75,000 b/d month over month, respectively.
Ceasefire does not mean end of conflict
A ceasefire in the Middle East does not mean the conflict is over. The fear premium in oil prices can reappear overnight, bringing back uncertainties in the oil market. Israel's military success may have raised the possibility that Iran could ease 46 years of hostilities with the US and Israel, but for now, it's too early to jump to that conclusion.
A weakened Iran could become more repressive internally and provocative externally. Much will depend on the internal and opaque political dynamics within Iran. But the impact on the oil market could be profound if trade and investment sanctions against Iran are eased or lifted.
In addition, oil markets will closely monitor Washington's recent decision to remove Syria's oil ministry, its two refineries, and maritime authority from its sanctions list, as this could pave the way for the war-torn country's return to the international oil trade.
US sanctions on Syria were officially lifted by President Donald Trump on June 30, following earlier moves by the EU and the UK to ease economic curbs on the country.
Before the onset of the civil war in 2011, Syria pumped around 380,000-400,000 b/d of crude -- enough to meet its domestic consumption and supply some barrels to the international market.
However, Syria's oil and gas fields and infrastructure have been badly damaged and neglected. Syria's crude production has plummeted to approximately 90,000 b/d from 442,000 b/d in 2004, severely limiting export potential until production recovers, according to Commodity Insights data.
The removal of sanctions could eventually increase Syrian oil supply to global markets, though significant production increases will take time. Syrian crude grades, which are predominantly medium-heavy sour varieties, could eventually compete with similar Mediterranean grades once production and export infrastructure are restored.
Threat of secondary sanctions
Adding a layer of uncertainty to the market is the latest statement from Trump who said on July 14 that he would impose 100% secondary sanctions on any country that buys Russian exports if Russia does not reach a peace agreement with Ukraine in the next 50 days.
The announcement came amid a bipartisan push in the US Senate to pass the Sanctioning Russia Act of 2025. The bill would impose a 500% duty on all goods or services imported into the US from any country that "knowingly sells, supplies, transfers, or purchases oil, uranium, petroleum products, or petrochemical products that originated in the Russian Federation," according to the bill text.
To date in 2025, India, China, and Turkey have been the largest purchasers of Russian oil, according to data from S&P Global Commodities at Sea, collectively representing 53% of Russia's total waterborne exports. India has imported an average of 1.69 million b/d of Russian crude and condensates in 2025, while China took an average of 1.09 million b/d and Turkey 377,000 b/d, CAS data showed.
Potential 100% US tariffs on China and India would have significant market ramifications and could alter Asian crude oil flows to a large extent. By now, top buyers of Russian crude must have started pondering about their Plan B in the event new US sanctions against Russia come into force.
Sambit Mohanty is Asia Energy Analyst at S&P Global Commodity Insights, leading coverage for Platts Oilgram News for the Asia-Pacific region. Sambit is based in Singapore and has more than 25 years of experience as a senior journalist and editor analysing commodities and energy trends in the region. He holds a Master's Degree in Applied Economics.