As we move into mid-2025, the global crude oil market is being pulled in different directions by a complex interplay of supply and demand factors. Despite OPEC+ announcing a production increase starting in July, oil prices have climbed unexpectedly.
WTI crude futures briefly approached $62.50 per barrel, with bulls testing the 50-day moving average. This counterintuitive rally reflects both the market’s pre-pricing of bearish news and the renewed escalation of geopolitical risks—highlighting the delicate balance between sentiment and fundamentals.
At its June 2 meeting, OPEC+ agreed to raise output by 411,000 barrels per day starting in July—largely in line with market expectations, resulting in a muted immediate reaction in prices. However, what caught traders’ attention was the group’s decision to extend the voluntary 1.7 million bpd cuts—originally set to end in 2024—all the way through the end of 2025. This significantly reinforced the market’s medium-term “tight supply” narrative, partially offsetting the impact of the near-term increase.
This marks the third consecutive month of OPEC+ pushing for production hikes. On the surface, the move signals confidence in global economic recovery and a desire to stabilize markets. But beneath the surface lies a far more strategic calculus.
First, the output boost appears less about meeting demand and more like a calculated effort to defend market share, particularly against U.S. shale and other non-OPEC producers. Saudi Arabia seems to be shifting from its traditional "price stability via cuts" approach to a "volume-based defense" strategy aimed at preserving dominance.
Second, despite broad consensus, Russia expressed reservations about further increases, revealing internal divisions over the future price trajectory. Coordinating interests across the bloc remains a challenge.
OPEC+ also continues to rely on a compensation mechanism for members who overproduce, aiming to improve transparency and discipline. But this also underscores persistent issues with compliance—something markets are watching closely.
Outside OPEC+, other supply dynamics are also in play. U.S. oil rig counts have declined for five straight weeks, hitting a 3.5-year low—a sign producers are reacting to weaker prices and rising costs. Meanwhile, wildfires in Canada have led to partial shutdowns in oil sands production, amplifying North American supply risks and supporting market concerns about tightening output.
On the demand front, the U.S. is entering peak driving season, triggering a seasonal rebound in gasoline consumption. Gas station sales and traffic flow data both point to improving demand. In the Middle East, extreme heat is also driving up oil demand for power generation, offering marginal support to global consumption.
However, this upbeat trend is far from uniform. China—the world’s largest crude importer—saw transportation and port throughput stagnate in April, while gasoline and diesel sales fell year-over-year, and refinery run rates declined. While the broader economy remains steady, oil consumption is clearly losing steam. Behind the slowdown are factors such as rising EV adoption, price wars delaying car purchases, and ongoing industrial restructuring.
Refiners are proactively cutting output, which has helped draw down fuel inventories—but that reflects short-term rebalancing, not genuine demand strength. Instead, it signals persistent structural weakness in domestic consumption.
In India, despite strong economic growth, oil consumption has fallen short of bullish expectations. Its service-led economy consumes less energy per unit of GDP than China’s manufacturing-heavy model, meaning that even as India’s economy expands, its marginal contribution to global oil demand may be relatively limited.
The real catalyst behind oil’s recent resilience arguably lies in rising geopolitical uncertainty. Escalation in the Russia-Ukraine conflict has reignited fears of supply chain disruption.
Meanwhile, a proposal in the U.S. Senate to impose a 500% tariff on countries importing Russian oil has added a fresh layer of complexity to global trade dynamics—creating far more immediate upside pressure on prices than the OPEC+ supply bump.
The Trump administration’s tariff policy has also cast a shadow over the broader energy market. While core U.S. PCE inflation eased to 2.5% in April, trade volumes slumped sharply due to tariff-related disruptions. Steel tariffs, for instance, doubled in a matter of weeks—underscoring the unpredictability of U.S. policy.
More broadly, trade talks between the U.S. and key partners remain at a stalemate, with U.S.-China relations particularly strained. While Trump claimed a quick deal brought short-term calm, subsequent tech export restrictions and visa limits suggest tensions remain unresolved. This uncertainty doesn’t just affect goods flows—it poses latent risks to the energy market and price formation.
In the short term, oil prices appear supported by seasonal demand and geopolitical risks, showing a degree of downside resilience. But over a longer horizon, OPEC+’s gradual easing of cuts could result in rising supply pressure into 2025. Although sanctions and cost challenges continue to cap output in countries like the U.S., Iran, and Venezuela, the pace and tone of global supply still largely rest in OPEC+ hands.
On the demand side, seasonal strength aside, China’s slowdown and India’s underperformance have led to greater caution around the long-term consumption outlook. Add to that the rising weight of geopolitical tension and trade barriers, and the result is an increasingly volatile oil market.
In my view, the crude market has entered a new phase marked by heightened volatility. With sentiment swinging rapidly between competing narratives—geopolitical risks, macro uncertainties, and evolving supply-demand dynamics—I remain inclined toward a “sell the rally” strategy. This is especially true for short-term price spikes driven more by sentiment or headlines than solid fundamentals.
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