Oil’s Downward Slide: OPEC+ Output Hike and Trade Turmoil Pressure Prices

Oil prices concluded the week lower, driven by market expectations of a significant output increase from OPEC+ and persistent uncertainty stemming from global trade tensions. This confluence of factors paints a bearish outlook for crude, as a potential oversupply looms over weakening demand signals.

OPEC+ Weighs Greater Supply Boost

Brent and West Texas Intermediate (WTI) crude futures both registered weekly losses exceeding 1%, reflecting market sentiment that OPEC+ is poised to increase oil production for July beyond previously anticipated levels. While the group had committed to a 411,000 barrels per day (bpd) increase for May and June, reports suggest discussions are underway for an even larger boost in July.

This potential surge in supply comes amidst a widening global oil surplus, estimated at 2.2 million bpd. Such an imbalance typically necessitates a downward price adjustment to incentivize a supply-side response and restore market equilibrium. The prospect of more barrels entering the market from OPEC+ at a time when global demand remains susceptible to various headwinds signals a challenging period for crude prices, with some projections indicating a potential slide into the high $50s per barrel by year-end.

Trade Policy Uncertainty Adds Pressure

Beyond the supply-side dynamics, the unpredictable nature of US trade policy continues to exert downward pressure on crude prices. President Trump’s recent comments, particularly those on social media platforms, hinting at further changes to tariffs on Chinese imports, have reignited market anxieties.

This follows a tumultuous week where a federal appeals court temporarily reinstated most of President Trump’s sweeping tariffs, reversing an earlier trade court decision that had deemed them unlawful. The back-and-forth legal and political maneuvering surrounding these duties contributes significantly to market volatility and concerns over global economic growth, which directly impacts oil demand forecasts.

US Drilling Activity Slows

Further complicating the supply-demand picture, US energy firms have continued to reduce the number of active oil and natural gas rigs. For the fifth consecutive week, the total rig count declined, reaching its lowest level since November 2021. This marks the first time since September 2023 that rig numbers have fallen for five straight weeks, indicating a cautious approach by domestic producers.

Despite a slight increase in gas rigs, the number of operational oil rigs fell to 461, signaling a contraction in future US crude output. This trend, while potentially offering some long-term support to prices by curtailing future supply, is currently overshadowed by the immediate impact of potential OPEC+ increases and broader macroeconomic concerns.

Volatile Market

The oil market is currently caught between the prospect of increased supply from major producers and demand uncertainty exacerbated by trade policy shifts. The upcoming OPEC+ meeting will be crucial in determining the immediate trajectory of crude prices. While a contraction in US drilling activity might offer a glimmer of long-term rebalancing, the immediate future for oil is likely to remain characterized by volatility, as supply management decisions and geopolitical trade tensions continue to dictate market sentiment.