Oil prices defy Opec+ hike as geopolitical risks, supply tightness lend support

Khaleej Times

a day ago

Oil prices rose on Monday despite Opec+ confirming it will raise output in September, as a combination of tight inventories, renewed geopolitical tensions and expectations of US interest rate cuts offset concerns about increased supply.
The day's rally came after early-session weakness pushed crude to its lowest in a week. By mid-morning, Brent crude was trading at $69.48 per barrel, up 0.30 per cent from Friday's close of $69.27. West Texas Intermediate (WTI) gained 1.86 per cent to $66.77 per barrel from $65.55. Later in the day, Brent crude futures fell $1.17, or 1.7%, to $68.50 a barrel by 1127 GMT. US West Texas Intermediate crude declined $1.26, or 1.9%, to $66.07. Both contracts lost about $2 on Friday.
The alliance of major oil producers, including Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman, confirmed on Sunday that they will raise collective output by 547,000 barrels per day (bpd) in September compared to August levels. This adjustment is part of a phased unwinding of the 2.2 million bpd in voluntary cuts introduced on April 1, in four equal monthly increments. The group stressed the plan remains flexible, with the possibility of pausing or reversing the increases should market conditions warrant it.
Opec's communiqué cited healthy market fundamentals, reflected in low inventories, and a broadly steady global economic outlook. That backdrop was challenged, however, by fresh US labour market data that fell well short of expectations, reviving speculation that the Federal Reserve could cut interest rates as early as September. The US economy added just 73,000 jobs in July, according to the Labour Department, far below forecasts.
Lower rates tend to weaken the dollar, making oil cheaper for non-dollar buyers and potentially boosting demand. US President Donald Trump has publicly urged the Fed to cut rates, heightening market bets on a policy shift. At the same time, Trump's increasingly combative exchanges with former Russian president Dmitry Medvedev have reintroduced concerns about global energy security. Trump disclosed on Sunday that two US nuclear submarines had been deployed 'where they need to be' following Medvedev's warning that US pressure over the Ukraine conflict risked escalating into a broader confrontation.
Trump has also threatened sweeping secondary sanctions and tariffs on Russian oil buyers unless Moscow ends the war in Ukraine within days. Analysts say such measures could disrupt up to 2.75 million bpd of seaborne Russian crude, forcing major importers such as India and China to source alternative—and likely more expensive—supplies.
Vijay Valecha, chief investment officer at Century Financial, said the market's reaction reflected a tug of war between the bearish implications of more Opec+ supply and the bullish potential of sanctions-driven disruptions. 'While the 547,000 bpd increase is designed to regain market share, the escalating geopolitical risks surrounding Russian oil could significantly tighten global supply,' he said. 'If sanctions remove substantial Russian volumes from the market and global demand holds, the supply–demand balance could shift decisively in favour of higher prices.'
Technical indicators suggest the rebound could have further to run. WTI has tested and bounced off its 100-day exponential moving average near $65.99 and may look to challenge resistance at the 200-day simple moving average of $67.48. Brent has similarly found support near its 200-day moving average at $68.95, with the next upside target around $71.26.
Frank Walbaum, market analyst at Naga, said traders remain alert to the dual forces at play. 'Potential disruptions to Russian crude shipments, especially to Asia, could underpin prices as Trump's secondary tariff deadline approaches,' he noted. 'While extra Opec+ supply may weigh on prices, the group's readiness to adjust output in response to market signals adds a layer of uncertainty.'
Market sentiment will also be shaped by the pace of Opec+'s supply unwinding beyond September. Should prices come under sustained pressure, the group may slow or reverse the rollback of cuts. Conversely, if geopolitical tensions drive prices higher, producers could stick with planned increases to safeguard market share.
The immediate outlook for oil hinges on whether geopolitical risks translate into real supply losses, and whether demand remains resilient in the face of mixed economic data. The International Energy Agency (IEA) has projected that oil demand growth will slow in 2025 to about 1 million bpd from 2.2 million bpd in 2024 as post-pandemic rebounds fade and energy transition policies gather pace. But it warns that any significant disruption to Russian exports could tighten balances sharply.
On the supply side, global inventories remain below five-year averages, a factor that continues to provide underlying support. The US Energy Information Administration recently reported that US commercial crude stocks fell by 3.5 million barrels in the last week of July, while product inventories also declined.