9 hours ago
Crude Market Has De-Risked For Now. Are We Heading To Sub-$60 Oil?
A crude oil tanker moored near the Mediterranean port of Limassol. Cyprus. (Photo: by Danil Shamkin)
The recent oil price spike ended almost as quickly and routinely as it arrived. Global proxy benchmark Brent went from low $60 per barrel price levels at the end of May to high $70 levels and back by end-June, gaining and shedding 20% in no time.
And in that time, the market saw OPEC+, a select group of Russia-led oil producers and the Organization of the Petroleum Exporting Countries, spearheaded by Saudi Arabia, raise its collective production level for July by another 411,000 barrels per day.
The move was the third consecutive output hike of a similar announced by OPEC+. It was followed by Israel and Iran indulging in a heated military exchange, a subsequent but hitherto empty threat to close the Strait of Hormuz by Tehran, and a bombing by the U.S. of Iran's nuclear facilities.
But an easing of fears of a wider regional conflict in the Middle East on Monday, and the cessation of hostilities punctured the rally, as market fundamentals pointing to a well supplied market returned with a vengeance.
The rally, driven by heightened risk premiums, was already on a weak and uncertain footing with plenty of oil in the market, and predictions of muted demand growth by the International Energy Agency.
Problem is that, during a phase of heightened geopolitical tensions, it is easy to lose sight of the fact that oil is not just a story of supply, but quite critically a story demand too.
Oil Is Not Just A Story Of Supply
In its June market update, the IEA forecast global oil demand to increase by 720,000 bpd in 2025. It also added that growth in 2026, at 740,000 bpd, will be held back by 'a challenging economic outlook and the uptake of clean energy technologies.'
Of course, IEA is often deemed too bearish in some quarters, and there are others in the market predicting demand growth north of 1 million bpd for 2025 and 2026, including OPEC, which puts it at 1.3 million bpd, according to its latest monthly update.
Even if the most optimistic demand growth forecast is taken at face value, that can still be more than met by production growth from non-OPEC sources, and that too at a time when OPEC is bringing back more barrels.
It's precisely why Wall Street is somewhat busy moving past 'what if' ad hoc predictions on oil prices ranging between $80 and $110. They were all based on hypotheticals about Iran shutting down the Strait of Hormuz, restricting oil flows through the critical maritime artery, halving them for a month and reducing them by 10% for the following 11 months.
As even that unrealistic prospects fades away, the oil market is staring at a surplus for the fourth quarter of the year, especially for light sweet crude. Back in May, prior to the escalation of tensions in the Middle East, for 2026, Goldman Sachs was predicting sub-$60 average oil prices; $56 for Brent and $52 for U.S. benchmark West Texas Intermediate.
It was part of rising number of its peers lining up to trim their price predictions for 2025-26 down to the $60s or below. That world is rapidly returning and will likely stay barring a major geopolitical escalation or macroeconomic event.
