Key facts
- OPEC+ will increase oil production by 411,000 barrels per day in June.
- Global oil prices have fallen to near $70 per barrel, with Brent crude trading around $72.54/bbl.
- Analysts suggest the recent selloff in oil prices is overdone.
- China's crude oil imports have significantly decreased but are projected to recover soon.
- High speculative short positions in Brent crude indicate potential for a short squeeze.
OPEC+ has decided to increase its combined oil supply by 411,000 barrels per day in June, signaling a shift in strategy after more than two years of attempting to drive up prices through production cuts. This decision comes amid easing pressure on oil supplies due to U.S.-Iran talks and persistent market volatility. Global oil prices have collapsed back to pre-war levels, trading near $70 per barrel, with a potential peace deal between the U.S. and Iran helping calm global markets and prompting the removal of massive war risk premiums from energy valuations. However, escalating military tensions between the United States and Iran have sparked fresh fears of shipping disruptions in the vital Strait of Hormuz.
ING Research suggests the recent selloff is likely overdone, with the market being too optimistic about the prospects of a quick resumption of normal oil flows through the Persian Gulf. Tit-for-tat strikes between the U.S. and Iran over the weekend have highlighted the fragility of the ceasefire, threatening market hopes for a quick resolution. Financial and physical indicators suggest that the broader market has heavily overshot to the bearish side, with buyers deferring oil purchases and refiners drawing down existing on-site stocks. China's crude oil imports have plummeted nearly 30% year-over-year to their lowest levels since 2018, contributing to lower global oil prices. However, Kpler has projected that China's crude oil imports and broader demand could recover as early as August.
Brent has been trading at a steep discount compared to future contracts, incentivizing storage over immediate consumption and leading refiners to draw down inventories. Analysts warn that continuous inventory drawdowns are unsustainable, potentially forcing the curve to flatten. Furthermore, speculative gross short positions held by money managers on ICE Brent have soared to historic highs, increasing selling momentum but also creating conditions for a potential oil price short squeeze.