Oil prices fell to a three-week low on Tuesday, with both Brent and West Texas Intermediate (WTI) crude prices slipping as supply concerns eased, and expectations grew for an increase in production by the Organization of Petroleum Exporting Countries and allies (OPEC+). The drop in prices also came in light of easing geopolitical tensions between Israel and Iran, which had previously sent prices soaring.
OPEC+ Production Hike: Focus Shifts to July Meeting
Brent oil futures for September fell 0.3% to $66.57 a barrel, while WTI crude futures dropped by 0.3% to $63.64 a barrel by 21:17 ET (01:17 GMT). These prices reflect a retreat to levels not seen since June 11, the days before the Israel-Iran conflict escalated.
Market attention is now squarely on the upcoming OPEC+ meeting, where the cartel is expected to approve another hike in production. Last week, Reuters reported that OPEC+ will increase output by 411,000 barrels per day in August, following similar increases in May, June, and July. This increase would bring the total output increase for 2025 to 1.78 million barrels per day. While this hike is modest compared to the deep cuts the group made in previous years, it signals a shift in OPEC+ policy toward restoring output after scaling back production during the pandemic.
Top producers within OPEC+, such as Saudi Arabia and Russia, have been seeking to punish overproducing members by maintaining subdued oil prices. The current production hikes reflect this effort to balance market prices while managing internal cartel dynamics. However, the increase also signals that OPEC+ is responding to prolonged oil price weakness and seeking to stabilize market conditions as global demand recovers.
Geopolitical Risk Eases: Israel-Iran Ceasefire Holds
The recent escalation of tensions between Israel and Iran sent oil prices surging earlier this month, but with the U.S.-brokered ceasefire holding, supply disruptions from the Middle East are less likely. The Israel-Iran ceasefire has eased geopolitical risk, and traders have now dialed back the risk premium on oil prices that had been driven by concerns about potential disruptions in key oil supply routes, such as the Strait of Hormuz.
As a result, oil prices have retreated from the highs seen earlier in the month. The relatively stable situation in the Middle East has helped alleviate the fears that were pushing prices upward and returning oil markets to more familiar, pre-conflict levels.
U.S. Trade Tensions and Tariffs Add Pressure to Oil Markets
Despite the ceasefire in the Middle East, oil markets remain nervous about the potential impact of U.S. trade tariffs, with President Donald Trump’s July 9 deadline for reaching trade deals with several countries, including Japan, approaching. On Monday, Trump lashed out at Japan, criticizing the country’s rice import practices, and hinted at the possibility of ending trade talks with Tokyo. U.S. Treasury Secretary Scott Bessent warned that countries like Japan and India could face tariffs exceeding 20% if trade talks fail to reach agreements.
The looming threat of higher tariffs has raised concerns that trade disruptions could negatively impact global economic growth. This could, in turn, dampen demand for oil, especially in key importing countries like China and India, which have been central drivers of oil demand. If the U.S. follows through with its tariff threats, it could undermine economic activity in these regions, potentially reducing oil consumption and further pressuring prices.
Market Sentiment and Outlook
As markets approach the July 9 deadline, there is growing uncertainty surrounding the future of global trade relations, particularly between the U.S. and its major trading partners. Investors are increasingly concerned that escalating trade tensions could result in broader economic disruptions, including slower growth in oil demand.
In the short term, oil prices will continue to be influenced by several factors, including OPEC+ production decisions, geopolitical developments, and the status of U.S. trade negotiations. While oil prices are under pressure, particularly in light of the anticipated OPEC+ output hike, market dynamics suggest that any significant price recovery will depend on renewed geopolitical risks or unexpected changes in global demand patterns.
For now, market participants are awaiting further developments regarding the U.S. tariff situation and OPEC+ policy decisions.