Crude oil markets are demonstrating resilience, absorbing an unexpected supply boost from OPEC+. The organization recently announced it would increase its output by more than 500,000 barrels per day starting next month, a decision that surprised many industry analysts. Following this announcement, Brent crude prices initially hovered around $68 per barrel but surged to over $70 later in the week before settling with a modest increase.
Despite expectations that oil prices would decline with the influx of new barrels, they instead rose, highlighting a disconnect between market perceptions and actual supply-demand dynamics. “You can see that even with the increase in several months, we haven’t seen a major buildup in inventories, which means the market needed those barrels,” stated Suhail al Mazrouei, the energy minister of the United Arab Emirates, during an OPEC seminar in Vienna, as reported by Bloomberg.
Global Inventory Levels Remain Low
Current data from the International Energy Agency (IEA) indicates that global oil inventories are not at risk of overflowing. While non-OECD crude oil inventories increased earlier this year, OECD inventories are currently 97 million barrels lower than at this time last year, contributing to a decline in total global stockpiles. This situation is exacerbated by a peak demand season in the northern hemisphere, which raises concerns about potential fuel shortages.
Analysts from the Wall Street Journal noted a looming risk of a diesel shortage, attributed not solely to crude oil prices, but largely due to low refining margins. “Because of those run cuts, we started this year with not enough diesel in storage, and saw increased demand because of the cold winter,” explained James Noel-Beswick, an analyst at Sparta Commodities. He emphasized the need for refiners to adjust their output to meet the recovering demand, suggesting that any necessary inventory replenishment could lead to higher prices.
The tightening global oil supply has been underscored by significant geopolitical tensions, especially in the Middle East. Recent flare-ups in violence have led to price spikes, despite no direct impacts on oil infrastructure. Commodity analysts have noted that if the market were truly oversupplied, such geopolitical events would not trigger price increases.
Future Projections and OPEC’s Demand Outlook
While some analysts continue to forecast a potential surplus later in the year, there is a growing recognition of current market realities. Recent forecasts have shifted from a previously assumed oversupply, with ING commodity analysts indicating that OPEC’s supply increase could lead to a surplus in the fourth quarter, subsequently placing downward pressure on prices. “These increases should move the global market into a large surplus in the fourth quarter, intensifying downward pressure on prices. For now, though, the market remains relatively tight through the northern hemisphere summer,” wrote analysts Warren Patterson and Ewa Manthey.
In light of these developments, OPEC has revised its demand forecast for oil, lowering the 2026 projection to 106.3 million barrels per day from the previous estimate of 108 million bpd. The adjustment is largely driven by slowing demand growth from China, which has been noted as a significant factor in the overall demand outlook.
As the peak demand season approaches its end, experts like Bob McNally from Rapidan Energy Group suggest the balance between supply and demand will shift. The conclusion of OPEC+’s unwinding of production cuts will further influence market conditions. For now, the oil market continues to exhibit tightness, with a complex interplay of supply adjustments and demand fluctuations shaping the landscape.
