Oil prices edged higher but were prepared for a weekly loss, as a potential increase in OPEC+ output and the possibility of a ceasefire between Russia and Ukraine could raise supply.
The volatility of oil is an unavoidable difficulty that the world has accepted. The slightest changes in the global economy can send oil prices reeling; this can oscillate between huge gains and devastating losses. This period, where a trade war is escalating, not just between the US and China, but crushing all other economies across continents, has had industry observers following oil markets with bated breath.
On Friday, oil prices edged higher but were prepared for a weekly loss, as a potential increase in OPEC+ output and the possibility of a ceasefire between Russia and Ukraine could raise supply, while demand is shrinking in the wake of uncertain Trump tariffs.
Brent crude futures gained 5 cents to $66.60 a barrel but are set to fall 2% this week. Similarly, US West Texas Intermediate (WTI) crude also gained 6 cents, rising to $62.85 a barrel, but was set to fall 2.9% for the week.
A call for a ceasefire between Russia and Ukraine, and the relaxing of sanctions, will increase the volume of Russian oil output into the supply chain. Russia is a member of the OPEC+ (Oil Producing and Exporting Countries) and is one of the biggest oil producers in the world, on par with Saudi Arabia and the US.
Russia’s invasion of Ukraine, which has raged on since 2022, has caused considerable economic upheaval, and OPEC countries have enjoyed being the primary exporters to countries sanctioning and boycotting Russian oil imports. However, after Trump’s aggressive efforts, Moscow has finally agreed to a ceasefire, the terms for which will be agreed upon soon.
The Russian situation aside, OPEC+ has also decided to increase supply, thus influencing the losses in oil prices. According to a Reuters report, the oil exporting group has decided to expand output for the second consecutive month in June, as the members remain divided over complying with production quotas.
The tariff war between the US and China, coupled with an unforeseen decision by OPEC+ to increase output by 411,000 barrels per day in May, which was three times more than what was originally decided, resulted in oil prices hitting a four-year low in April. Saudi Arabia pushed for accelerated supply after Iran and Kazakhstan reportedly produced above their prescribed quotas.
These two countries are the group’s biggest overproducers, with data suggesting that Iranian exports surged in April, month-on-month. Kazakhstan’s output, on the other hand, decreased by 3% compared to March, but it still produced above the OPEC+ limit in April.
Iran is also suffering from sanctions, and the country’s Foreign Minister, Abbas Araqchi, said he plans to visit Europe to renegotiate Tehran’s nuclear programme, with France suggesting that European countries were also willing to participate in the discussion. France’s foreign ministry spokesman, Christophe Lemoine, said that while the E3 (European powers) were inclined to engage with Iran, they wanted to confirm how serious Tehran was in keeping its end of the deal.
The West suspects that Iran wishes to pursue nuclear weapons, which it has repeatedly denied. Therefore, the threat of renewed sanctions is being used to keep Iran in line. Should the deal go awry, an oil embargo on the country will unquestionably disrupt the supply chain and, in turn, the prices, particularly since Iran occupies the position of third-largest producer in OPEC after Saudi Arabia and Iraq.
While suppliers are enthusiastic about increasing output, demand still looks weak, amidst the trade war between Beijing and Washington, the two largest oil-consuming countries. Businesses are also hiking prices, as their production costs have surged. These major changes in supply chains have begun eliciting concerns regarding a global economic slowdown, which could in turn upset demand for oil, rocking prices once again.
