Oil Market Shifts Focus to Demand-Supply Dynamics

With the Iran-Israel ceasefire holding steady after last week’s missile attack on a US base in Qatar, global oil markets are redirecting attention from geopolitical risks to core demand-supply factors.

On Monday, Brent crude futures dipped by 19 cents, or 0.3%, settling at $67.58 per barrel by 1501 GMT, according to Reuters. US West Texas Intermediate (WTI) crude fell 62 cents, or 1%, to $64.90 per barrel. Brent had soared over 30% in three weeks, peaking on June 23, before a sharp two-day decline—the largest since 2022—wiped out most gains driven by summer demand and Middle East tensions. Saxo Bank’s Ole Hansen noted that the Bloomberg Commodities Index hit a cycle high on June 20 but faltered last week due to weakness in energy and grains.

The ceasefire has diminished the risk premium tied to potential disruptions in the Strait of Hormuz. Prior to Israel’s June 12 strikes on Iran, the market was already trending toward oversupply by Q4 2025. OPEC+ nations, which cut production by 2.2 million barrels per day (bpd) last year, began easing these restrictions in April. The group increased output by 411,000 bpd in July and plans a similar hike in August, with full unwinding expected by October, per Wood Mackenzie’s Ann-Louise Hittle. This could pressure prices downward amid sluggish global demand growth, driven by economic challenges.

Emirates NBD’s Edward Bell remarked that geopolitical tensions, unless causing actual supply disruptions, tend to spike oil prices briefly before fading. The 2019 Abqaiq attack, for instance, pushed oil from $60 to nearly $70 per barrel in a day, but gains dissipated quickly. Bell noted the market’s resilience, with spare capacity cushioning supply concerns.

The International Energy Agency (IEA) projects a well-supplied 2025 market, with global oil demand rising by 720,000 bpd—slightly below prior estimates due to weak US and China deliveries. Global supply in May rose 1.9 million bpd year-on-year, partly due to OPEC+ unwinding cuts. The IEA forecasts supply to hit 104.9 million bpd in 2025 and grow by 1.1 million bpd in 2026, with non-OPEC+ producers contributing 1.4 million bpd this year and 840,000 bpd next.

The US Energy Information Administration (EIA) predicts US crude production will drop from 13.5 million bpd in Q2 2025 to 13.3 million bpd by Q4 2026, driven by fewer active drilling rigs and lower prices. Active rigs fell more than expected last month, per Baker Hughes data, leading to reduced drilling and completions. The EIA projects US output to average just above 13.4 million bpd in 2025 and slightly below in 2026.

Rising global oil inventories are likely to push prices lower. Brent’s spot price dropped to $64 per barrel in May, down $4 from April, with the EIA forecasting $61 by year-end and $59 in 2026. LongForecast predicts WTI volatility, with peaks at $73.52 in June and dips to $56.01 by autumn, driven by inflation, OPEC+ output, and China’s demand. Analyst Jana Kane from LiteFinance expects sideways trading in 2025, with sentiment shifting quarterly.