Riyadh has grown weary of propping up the oil market and has opted to let Brent and WTI prices fall. This surprising shift could ultimately benefit OPEC+. Until recently, competitors had successfully sidelined the cartel, but the situation has now reversed.
The article covers the following subjects:
Major Takeaways
- The increase in OPEC+ production has roiled the market.
- Saudi Arabia can withstand low prices.
- American oil producers have taken a hit.
- Brent crude is currently trading at $58 and $54 per barrel.
Weekly Fundamental Forecast for Brent
Investors are not only watching trade disputes but also the unfolding oil war. Saudi Arabia has decided it can no longer support Brent and WTI prices alone. OPEC+ surprised traders by announcing a production increase of 411,000 barrels per day starting in June, causing major oil prices to plummet to four-year lows. While Riyadh claims resilience amid falling prices, it remains uncertain if US competitors can achieve similar stability.
In recent years, OPEC+ has consistently contributed to the stability of the market by reducing or extending its production cuts. Consequently, oil production in Saudi Arabia has reached its lowest levels since 2010, while competitors have continued to gain market share.
Saudi Arabia’s Oil Output
Source: Bloomberg.
To raise prices effectively, sometimes it is necessary to lower them first. OPEC+ has already reduced its production cuts by 44%, or 2.2 million bpd, adding 960,000 bpd to the market. According to DNB Markets, oil may drop below $50 per barrel if this process continues. However, a survey conducted by the Dallas Fed indicates that US producers are satisfied with WTI standing in the $61-$70 range. The lower value forces them to cut production.
The official reason for refusing to fulfill its commitments was the ongoing quota violations by Kazakhstan and Iraq. However, the underlying issue is more complex. Saudi Arabia is aware that it is losing market control and aims to demonstrate the potential consequences if the US lifts sanctions on Venezuela and Iran. Additionally, it is likely concerned about the rapprochement between Washington and Moscow.
Although the increase in OPEC+ production poses a challenge for US producers, it serves Donald Trump’s interests as he aims to curb inflation in the US and resolve the conflict in Ukraine. The US administration reports that falling oil prices are nudging Russia closer to achieving peace in Ukraine.
Brent Price and Trading Volume
Source: Bloomberg.
The oil conflict has pushed Brent‘s trading volumes to their highest level since 2021. Barclays has revised its Brent price forecast downward to $66 per barrel for 2025 and $60 for 2026. ING anticipates a price of $65 per barrel this year, while Morgan Stanley has reduced its estimate by $5. Goldman Sachs has made a more conservative adjustment of $2-3. Additionally, Tortoise Capital predicts a 500,000 bpd surplus in June, which may push WTI to $50 per barrel.
Weekly Trading Plan for Brent
The key question is: Who benefits from all this? If both Saudi Arabia and Donald Trump are aiming for lower oil prices, Brent will continue to fall towards the targets of $58 and $54 per barrel. Consider short trades during pullbacks.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of UKBRENT in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
{{value}} ( {{count}} {{title}} )
This post is originally published on LITEFINANCE.
