Crude slips as geopolitical flare-ups meet persistent supply pressure
WTI prompt-month futures fell $0.96 over the week to settle at $61.53/Bbl on Friday, as the market navigated rising geopolitical tensions and an increasingly heavy supply outlook driven by OPEC+.
Geopolitical risk reemerged after CNN reported that Israel is preparing to strike Iran’s nuclear facilities. Iran vowed to retaliate and warned it would hold the U.S. accountable for any Israeli action. Despite the escalation, U.S.–Iran nuclear negotiations proceeded in Rome. Tehran emphasized urgency ahead of the talks, reaffirming its right to continue low-level uranium enrichment, while President Trump suggested that sanctions relief could be part of a potential agreement, potentially unlocking 200–300 MBbl/d of Iranian production.
Meanwhile, OPEC+ continued to pressure the supply side. The group is weighing a third consecutive monthly output hike of 411 MBbl/d in July, roughly triple the original pace of 138 MBbl/d per month. Though positioned as a penalty for quota noncompliance, the cumulative effect is eroding the fragile supply-demand balance. A final decision is expected at the June 1 ministerial meeting, and many analysts expect another increase despite supply glut concerns.
Elsewhere, the U.S. announced plans to let a key Venezuela oil license expire next week, potentially disrupting Chevron’s operations. While the move could reduce some volumes, the impact is expected to be modest in the face of rising OPEC+ production and a potential return of Iranian barrels.
This week’s market action underscores the fragility of crude pricing in an environment where upside geopolitical shocks are quickly outweighed by structural oversupply risks. The WTI curve remains in backwardation through the end of 2025 but begins to flatten into early 2026, reflecting inventory concerns and the looming return of sanctioned supply. Barring a major disruption, AEGIS maintains a neutral-to-bearish outlook.
Crude Oil Factors
Geopolitical Risk Premium. (Bullish, Surprise) Conflict in the Middle East helped offset much of the bearish demand story in 2024. Although no crude flows were disrupted, fears of a wider conflict supported oil prices. With Israel and Hamas reaching a ceasefire agreement earlier in 2025, the amount of geopolitical risk premium in the market will likley come out. Any further escalation of conflict in the Middle East or Europe could lead to an increase in crude prices.
Speculator Positioning (Bearish, Priced In) Managed money or speculator positioning is at the most bearish level since 2023. According to CFTC data, speculators hold a net-long position of about 100k contracts in WTI, down from 250k in January. Speculators are almost always net long on WTI, although at times this position will fall to very low levels, indicating bearish sentiment. This factor could also be looked at as a bullish surprise, given that any bullish catalyst would likely see speculators pile back into the market.
OPEC Market Share War. (Bearish, Surprise) The possibility exists, albeit a small one, that should OPEC's efforts to bolster oil prices through production cuts prove unsuccessful, the cartel could potentially flood the market with additional barrels as a strategy to reset. The probability of this has increased in 2025, as OPEC rhetoric seems to be less focused on price.
Oil/Product Inventories. (Bullish, Priced In) Crude inventories in the US remain low, although stocks have risen this year in-line with seasonal trends. Crude data is usually on a several-month lag. According to the April IEA report, OECD inventories were nearly 200 MMBbl below the five-year average as of February.
OPEC+ Quotas. (Bullish, Priced In) On June 2, OPEC+ announced its extension of 3.66 MMBbl/d cuts through December 2025. Additionally, the 2.2 MMBbl/d voluntary cuts from eight member countries will continue into Q3 2024 but will start to be reversed in October at a rate of 0.18 MMBbl/d per month. OPEC+ members agreed on September 5 to delay a planned gradual 2.2 MMBbl/d supply hike by two months, shifting the start to December. The group will add 0.19 MMBbl/d in December and 0.21 MMBbl/d from January onwards, with an option to adjust or pause these hikes depending on market conditions. The cartel also reaffirmed its compensation cuts of 0.2 MMBbl/d per month through November 2025, as members such as Iraq, Russia, and Kazakhstan have struggled to meet their original production quotas.
AEGIS notes that the global crude market would quickly build inventories without OPEC's support in reducing supply.
OPEC Unwind/Compliance. (Bearish, Surprise) The new voluntary OPEC+ production cuts put member nations' adherence to quotas under scrutiny. Any deviation, such as halting, reversing, or exceeding their quotas, could end up being one of the surprise bearish factors weighing on the market. OPEC announced recently that it plans to begin restoring production in April. This decision took the market by surprise as OPEC has delayed this plan several times, citing weak market conditions. OPEC's current plan is to bring back about 140 MBbl/d each month until all 2.2 MMBbl/d is restored.
China Demand. (Bearish, Priced In) China's oil demand has been severely affected by a combination of economic weakness and electrification trends within the country. Continued weakness in China's real estate sector has led to slower economic growth. The Chinese government has responded with interest rate cuts and multiple stimulus packages. Electrification trends have also dampened oil demand growth, with the buildout of high-speed rail and LNG-powered trucks and busses impacting diesel demand. China is one of the most prolific adopters of electric vehicles, impacting gasoline demand. Some estimates show demand for transportation fuels in China peaking, but oil demand from China's petrochemical sector should continue for the next few decades.
USD (Bullish, Surprise) The US dollar index surged to multi-year highs toward the end of 2024. The dollar has since erased all post-election gains despite tariff fears being realized. Typically, a stronger dollar will have a negative impact on crude prices, while a weakening dollar will support prices.
Non-OPEC Production. (Bearish, Priced-In) Non-OPEC production remains a bearish risk to the market, as strong output from the US, South America, or Africa could result in more supply coming to the market than expected. Strong non-OPEC growth has been seen over the past few years, driven by the US, Brazil, and Guyana.
Ukraine-Russia Resolution. (Bearish, Surprise) A potential resolution to the Ukraine-Russia war could see some of the risk premium come out of the market. A leaked memo detailed a potential plan to resolve the conflict led by the US. Recent talks between Trump, Zelensky, and Putin seem to be working toward a ceasefire or resolution to the conflict. While physical oil flows have not been disrupted, a relaxation of sanctions on Russia could initially weaken crude prices.
Fed Policy. (Bearish/Bullish, Surprise) The Federal Reserve is not expected to be as aggressive with cutting interest rates in 2025, given recent stickiness in inflation. The weakness in equity markets has led to the bond market pricing in an additional rate cut in 2025, with a total of three cuts expected. Rate cuts should be supportive of oil prices by fostering economic growth and weakening the US dollar.
Trade War. (Bearish, Surprise) President Trump's tariffs and a possible trade war could weaken economic growth this year, hurting oil demand and prices. While tariffs on Canadian and Mexican energy could be a bullish factor for oil, broader tariffs on other industries stand to hurt economic growth. Tariff fears have led to a 10% decline in equity markets.
Projected Oversupply. (Bearish, Surprise) The IEA continues to anticipate an oversupplied market in 2025, although the level of oversupply has been moderated a bit in its latest outlook. Around the end of 2024, the IEA was anticipating about 1 MMbbl/d of oversupply, which has now fallen to about 0.4 MMBbl/d.
Trump/Iran/Venezuela. (Bullish, Surprise) The Trump administration wants to return to a maximum pressure campaign on Iran in an attempt to limit the country's revenues. Sanctions in 2018 were able to significantly reduce Irans exports. Chevron has been told to begin winding down its Venezuela operations as the US has revoked its permit to operate there. If a large amount of Iranian or Venezuelan oil is removed from the market, it could support oil prices.
Global Refining. (Bearish, Priced in) Refining margins have weakened in Europe and Asia, reducing run rates. This factor can hurt oil prices but is priced in.
Russian Supply. (Bullish, Surprise) Aggressive US sanctions targetting Russia's energy sector were announced earlier this year, leading to fears that a significant volume of oil could be removed from the market. Prior sanctions targeting Russia failed to remove any supply from the market, although Russia's revenues have been negatively impacted.
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