OPEC+ Announces Further Production Increase, Crude Oil Prices Likely to Drop
West Texas Intermediate (WTI), the U.S. crude benchmark, rose slightly on Monday, trading around $65 a barrel.
WTI prices are still about $12 below the previous Monday's high, as prices lack upward momentum due to easing Middle East peace tensions and OPEC+ members expecting another increase in production in August.
Source: TradingView
WTI prices fell more than 12% in the five trading days last week, the biggest weekly drop since March 2023.
The conflict between Israel and Iran pushed oil prices up sharply last week; however, geopolitical risks in the Middle East were greatly reduced as both sides announced a ceasefire.
Goldman Sachs options data show that the market currently expects only a 4% chance of supply disruptions. This means that WTI crude oil prices will be dragged down in the short term. Data shows that traders set WTI price expectations in a more stable range of $60 to $69 per barrel in the coming months.
IG market analysts said that after the ceasefire between Iran and Israel, the market has removed most of the geopolitical risk premium from the price.
In addition, the news of increased oil production further hit the upward momentum of WTI prices.
The Organization of Petroleum Exporting Countries and its allies (OPEC+) said it would increase daily production by 411,000 barrels in August, similar to the previous increases in May, June, and July. OPEC+ is scheduled to meet on July 6, which will be the fifth monthly rate hike since the organization began to gradually lift production cuts in April.
However, since China is the world's second-largest oil and gas consumer, optimistic Chinese economic data may provide some support for oil prices.
Data released on Monday showed that China's official manufacturing purchasing managers' index (PMI) rose to 49.7 in June, from 49.5 in the previous month. This data is in line with market expectations. At the same time, the National Bureau of Statistics' non-manufacturing PMI rose to 50.5 in June, from 50.3 in the previous month and 50.3 in expectations.
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