Oil Prices Drop as Supply Outpaces Sluggish Demand

Global oil prices continued their downward slide on Tuesday as markets refocused on demand-supply dynamics following a sustained ceasefire between Iran and Israel. Brent crude futures dipped by 22 cents, or 0.3%, to $67.36 a barrel by 1600 GMT, while US West Texas Intermediate (WTI) crude fell 68 cents, or 1.1%, to $64.22 a barrel, according to Reuters.

The oil market saw a sharp 30% surge in Brent prices over three weeks, peaking on June 23, before plunging in its steepest two-day decline since 2022. This erased much of the summer demand and Middle East risk premium gains, noted Ole Hansen, Head of Commodity Strategy at Saxo Bank. The fading geopolitical risk, particularly around potential disruptions in the Strait of Hormuz, further eased the risk premium embedded in oil and gas prices.

Prior to Israel’s June 12 strikes on Iran, the market was already trending toward oversupply by Q4 2025. OPEC+ members, who implemented a voluntary 2.2 million barrels per day (bpd) cut last year, have been gradually unwinding it since April. The group announced a 411,000 bpd increase for July and is expected to add a similar volume in August, analysts say.

“Geopolitical tensions, unless they lead to actual supply disruptions, tend to have a short-lived impact on oil markets,” said Edward Bell, Acting Chief Economist at Emirates NBD. He pointed to the 2019 Abqaiq attack, where oil prices spiked from $60 to nearly $70 per barrel in a day but quickly retreated. “The market has enough slack to absorb supply concerns,” Bell added.

The International Energy Agency (IEA) projects a well-supplied oil market in 2025, with global demand growth forecast at 720,000 bpd, slightly down from prior estimates due to weak US and Chinese demand in Q2. Global oil supply rose by 1.9 million bpd year-on-year in May, driven partly by OPEC+ unwinding cuts. The IEA expects supply to reach 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 in 2026.

Wood Mackenzie’s Ann-Louise Hittle noted that if OPEC+ maintains its current pace, production cuts will be fully unwound by October, potentially flooding the market and pressuring prices downward amid sluggish global demand.

The US Energy Information Administration (EIA) predicts a decline in US crude production from 13.5 million bpd in Q2 2025 to 13.3 million bpd by Q4 2026, driven by fewer active drilling rigs and falling prices. The EIA reported a sharper-than-expected drop in active rigs last month, forecasting US output to average just above 13.4 million bpd in 2025 and slightly below in 2026.

Rising global oil inventories are expected to push prices lower. Brent’s spot price, down $4 from April to $64 per barrel in May, is projected to average $61 by year-end and $59 in 2026, per the EIA. LongForecast anticipates WTI volatility, with prices potentially hitting $73.52 in June but dropping to $56.01 by autumn, driven by inflation risks, OPEC+ output, and weak Chinese demand. “Oil prices are likely to trade sideways in 2025, with sentiment shifting quarterly,” said Jana Kane of LiteFinance.