Oil prices witnessed a sharp turnaround during trading on Thursday, as all of their early gains were erased, and they fell significantly. This dramatic change comes amid growing concerns regarding an imminent increase in supply from "OPEC+", along with U.S. oil inventory data that exceeded expectations, casting a shadow over global demand amid rising talk of a potential economic recession.
Today's Oil Price
After a limited increase earlier in the session due to investor caution and their anticipation of renewed nuclear talks between the United States and Iran, as well as the potential for an Israeli strike on Iranian nuclear facilities, these gains quickly evaporated.
Brent crude oil futures for June delivery fell by about $1.6 per barrel, or equivalent to 1.9%, settling below $64 per barrel.
Meanwhile, West Texas Intermediate (WTI) crude oil futures for May delivery declined by about 2.1%, or $1.7 per barrel, reaching levels of $60.5 per barrel.
Both benchmarks had dropped by 0.7% on Wednesday, confirming the ongoing pressures faced by the market.
OPEC+ Production Increase Pressures Oil Prices
News related to the "OPEC+" alliance's efforts to increase production is at the forefront of the factors putting pressure on prices, as reports indicate the injection of nearly 411,000 additional barrels per day into the markets. This comes amid expectations that "OPEC" will add approximately 950,000 barrels per day in total.
Members of "OPEC+" are discussing the possibility of agreeing to another significant production increase in their scheduled meeting on June 1, which could reach 411,000 barrels per day in July, equivalent to three times what was initially planned.
Increase in U.S. Oil Inventories
Data from the Energy Information Administration showed a surprising increase in U.S. crude oil inventories by 1.3 million barrels during the week ending May 16, bringing the total to 443.2 million barrels.
This increase is contrary to analyst expectations for a decline in inventories, raising concerns about weak demand in the world's largest oil consumer. Additionally, crude oil imports reached their highest level in six weeks, while demand for gasoline and distillate products declined.
These developments coincided with escalating fears of a global economic recession, which would negatively impact crude demand and put pressure on prices.
Geopolitical Concerns Unable to Raise Oil Prices
Although geopolitical tensions in the Middle East, such as Iranian nuclear talks and Israeli threats, have previously provided limited support to prices due to concerns over supply disruptions, their effect has faded in light of supply and demand pressures.
Future Outlook
In its latest report, the International Energy Agency (IEA) forecasted a global supply increase of 1.6 million barrels per day this year, a rise of 380,000 barrels per day from previous forecasts, as Saudi Arabia and other members of the "OPEC+" alliance cancel production cuts. Conversely, OPEC lowered this month its forecasts for U.S. and other non-OPEC+ oil supply growth for this year.
Additionally, many analysts are leaning towards lowering oil price forecasts in the coming period:
City Research: They expect Brent prices to reach $55 per barrel over the next three months if a nuclear deal is reached between the U.S. and Iran, while keeping long-term forecasts at $60. If no deal is reached, prices could rise above $70. Barclays Bank: They lowered their Brent crude price forecast by four dollars to $66 per barrel for 2025, and by two dollars to $60 per barrel for 2026. ING Bank: They expect the average Brent price to be $65 this year, down from $70 in previous forecasts.
