Oil prices slide on supply concerns

[WORLD] Oil prices continued their downward trajectory this week, rattled by mounting concerns that a surge in global supply could far outpace tepid demand growth. The latest drop comes as the Organization of the Petroleum Exporting Countries and its allies (OPEC+) weigh a significant production increase for July, a move that has already sent shockwaves through energy markets and revived memories of previous price wars.

OPEC+ Shifts Strategy: From Price Defense to Market Share

For much of the past two years, OPEC+ has maintained strict production curbs to support prices. That strategy appears to be changing. Delegates say the group is now focused on regaining market share, even if it means tolerating lower prices. “We’re witnessing the market’s response to indications that OPEC is abandoning a price defense strategy in favor of gaining market share. It’s akin to removing a Band-Aid; you do it all at once,” said Harry Tchiliguirian of Onyx Capital Group.

The proposed July increase—411,000 bpd—would be the third consecutive monthly hike and could see up to 2.2 million bpd restored to the market by November if current plans hold. This shift is partly aimed at disciplining members who have exceeded quotas, but also at countering record-high U.S. production and responding to political pressure from major oil-consuming nations.

Inventories Swell as Demand Softens

The latest data from the U.S. Energy Information Administration (EIA) showed crude inventories rising by 1.3 million barrels last week, defying analyst expectations of a drawdown. Gasoline and distillate stocks also climbed, reflecting weaker demand as the summer driving season approaches.

Emril Jamil of LSEG Oil Research noted that the surprise stock builds would “exert downward pressure on prices, particularly on WTI,” and could prompt more U.S. crude exports to Europe and Asia. Storage demand in the U.S. has surged to levels last seen during the COVID-19 pandemic, as traders prepare for a potential supply glut.

Price Forecasts: More Downside Ahead?

Analysts are revising their price forecasts downward. J.P. Morgan now projects Brent crude to average $66 per barrel in 2025, with further declines possible if supply continues to outpace demand. Goldman Sachs recently slashed its 2025 Brent forecast to $55 per barrel and warns that prices could fall below $40 in 2026 if global economic growth falters and OPEC+ abandons production restraint altogether.

“The market, thus far, has largely overlooked the apparent shift in OPEC’s reaction function, which we see as a more bearish argument than the potential decline in demand,” said Natasha Kaneva, head of Global Commodities Strategy at J.P. Morgan.

Winners and Losers

Winners:

• Major oil importers like India, China, and Europe stand to benefit from lower energy bills, which could help ease inflation and boost consumer spending.
• U.S. consumers may see relief at the pump, providing a modest buffer against broader economic uncertainty.

Losers:

• High-cost oil exporters such as Nigeria, Algeria, and Angola face fiscal pressure, as many require prices above $80 per barrel to balance budgets.
• Even Saudi Arabia, despite driving the production hikes, relies on oil prices above $81 per barrel for fiscal stability.

Economic and Policy Implications

The rapid fall in oil prices is reshaping the global economic landscape. Lower energy costs are expected to moderate inflation, potentially influencing central bank policy and boosting discretionary income for consumers, especially in lower-income brackets. However, for oil-dependent economies, the revenue shortfall could force budget cuts and accelerate efforts to diversify away from hydrocarbons.

Market volatility is likely to persist as OPEC+ policy evolves, U.S.-China trade tensions play out, and geopolitical risks—including renewed U.S.-Iran nuclear talks and potential Middle East disruptions—linger in the background.

Outlook: Volatility Is the New Normal

Most analysts agree that oil markets are entering a period of heightened volatility. The combination of rising supply, uncertain demand, and shifting producer strategies means price swings are likely to remain pronounced. While some investors hope that seasonal demand from the summer driving season will help draw down inventories, the broader trend points toward a market struggling to absorb excess barrels.

As the world’s major oil producers prepare for critical meetings in the coming weeks, traders and policymakers alike will be watching closely for signs of further supply increases—or an abrupt reversal if prices fall too far.