Oil prices have been on a rollercoaster ride recently, with fluctuations driven by a mix of geopolitical tensions, supply and demand dynamics, and market speculation. The latest twist in this saga came on Monday, when oil prices fell as investors weighed the prospect of reduced Middle East threats and an increase in production by OPEC+ countries in August.

Last week saw both Brent and U.S. crude oil benchmarks posting their largest weekly declines since March 2023. However, despite this setback, both benchmarks managed to end the month with gains, rising by 6% and 7%, respectively. Brent futures expired on Monday at $67.61, down by 16 cents (or 0.2%), while the more active September contract closed at $66.74. West Texas Intermediate crude also fell, dropping by 41 cents (or 0.6%) to $65.11.

One of the factors contributing to this decline in oil prices is the easing of tensions in the Middle East. After Israel’s attack on Iran’s nuclear facilities on June 13, oil prices briefly spiked above $80 per barrel before retreating to $67. The ceasefire brokered shortly after the attack has held up so far, leading to a reduction in the supply risk premium associated with the region. John Kilduff, a partner at Again Capital, noted that this risk premium is rapidly diminishing as the situation stabilizes.

Another factor influencing oil prices is the increase in production from OPEC+ countries. According to the Energy Information Administration’s Petroleum Supply Monthly series, U.S. crude oil output reached a record high of 13.47 million barrels per day in April, up from 13.45 million in March. Additionally, four OPEC+ sources informed Reuters last week that the cartel plans to raise output by 411,000 barrels per day in August, following similar increases in May, June, and July. If approved, this move would bring the total supply increase by OPEC+ to 1.78 million barrels per day in 2025.

Despite these developments, analysts remain cautious about the future trajectory of oil prices. Ole Hansen, a commodity strategist at Saxo Bank, believes that the market is underestimating the potential impact of increased supply on prices. He argues that the risk of oversupply could put further downward pressure on crude oil prices in the coming months. Additionally, Giovanni Staunovo, an analyst at UBS, noted that market pressures persist even as production levels rise, hinting at the delicate balance between supply and demand in the oil market.

Recent data on OPEC oil output confirms these concerns. While overall production increased in May, the gains were tempered by some member countries, such as Saudi Arabia and the UAE, who adhered to their production limits. In contrast, Kazakhstan, which has consistently exceeded its quota, is expected to ramp up production at its Caspian oilfields, potentially adding to global oil supplies this year.

Looking ahead, experts and economists surveyed by Reuters have revised their forecasts for oil prices in 2025. They now project that Brent crude will average $67.86 per barrel, slightly higher than the previous estimate of $66.98. Similarly, the average price for U.S. crude is expected to rise to $64.51, up from $63.35. These projections underscore the uncertainty and volatility that continue to shape the oil market, making it a challenging environment for investors and industry participants alike.

As the OPEC+ countries prepare to meet again on July 6, all eyes will be on their decision regarding production levels for the coming months. The outcome of this meeting could have significant implications for the future direction of oil prices and the broader energy market. In the meantime, market participants will be closely monitoring geopolitical developments, supply and demand trends, and other factors that could influence the dynamics of the oil market in the weeks and months ahead.