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Oil prices experienced a decline in Asian trade on Monday, with the easing of geopolitical tensions between Israel and Iran contributing to the reduction of a previously built-up risk premium. Furthermore, the anticipation of increased output from the OPEC+ group also put downward pressure on prices.
Brent crude futures for August dropped 0.8% to $67.20 per barrel, while West Texas Intermediate (WTI) crude futures saw a slightly steeper drop of 1.1%, reaching $64.77 per barrel by 21:44 ET (01:44 GMT). Despite the dip on Monday, oil prices were still on track for a 5% monthly rise, fueled by the initial surge during the Israel-Iran conflict.
Israel-Iran Ceasefire Eases Market Fears
The sharp declines over the past week came as the ceasefire brokered between Israel and Iran showed signs of holding, significantly easing concerns of supply disruptions from the Middle East. The 12-day conflict had previously caused oil prices to surge to annual highs, particularly following Israel and the U.S. attacks on Iranian nuclear facilities. However, the brokered ceasefire and President Trump’s remarks about resuming nuclear talks with Iran have diminished the risk of prolonged conflict, thereby reducing fears of supply bottlenecks.
Additionally, concerns over Iran’s potential blockage of the Strait of Hormuz, a critical oil shipping route, have subsided with the announcement of the ceasefire. The Strait of Hormuz is a vital passage for global oil shipments, and its closure would have sent prices skyrocketing.
OPEC+ Output Increase Concerns Weigh on Prices
Further pressuring oil prices is the expectation that OPEC+ will continue to increase production, which is scheduled to be discussed during their upcoming meeting on July 6. Reports indicate that the group will decide on an additional output hike of 411,000 barrels per day for August, mirroring the increases seen in May, June, and July. This decision comes as OPEC+ has been gradually scaling back two years of production cuts, which were initially implemented to prop up prices and counteract the economic effects of low oil demand.
In addition to OPEC+ production increases, market participants are keeping an eye on U.S. fuel demand, which typically rises during the summer months as travel activity picks up. The impact of these factors on oil prices is still unfolding, but the combination of easing geopolitical risks and anticipated increases in supply has prompted a recalibration of market expectations.
As the market digests these factors, oil prices are likely to remain volatile, especially with continued developments in both OPEC+ and geopolitical tensions.
