Lagos — Despite OPEC+’s decision to raise output in July, oil prices have defied expectations and moved higher. WTI crude futures approached $62.50 per barrel, with bulls testing the 50-day moving average. In my view, this “counterintuitive” rally reflects a combination of priced-in bearish news and escalating geopolitical tensions.
At its June 2 meeting, OPEC+ announced a supply increase of 411,000 barrels per day starting in July – a move that was largely anticipated by the market. As a result, the negative price impact was limited. More importantly, the alliance extended its voluntary output cuts of 1.7 million barrels per day – originally set to expire at the end of 2024 – through the end of 2025. This reinforced a tighter long-term supply outlook and helped cushion the market against near-term supply increases.
The bigger catalyst, however, lies in geopolitics. The renewed escalation in the Russia-Ukraine conflict has reignited concerns over potential disruptions to energy supply chains. Meanwhile, a previous proposal in the U.S. Senate to impose a 500% tariff on countries buying Russian oil has added a fresh layer of uncertainty to global crude trade dynamics. These geopolitical developments are playing a far more direct role in driving prices higher.
At the same time, WTI front-month contracts have seen notable strength, supported by a sharp two-week decline in U.S. oil rig counts. Wildfires in Canada are also threatening to disrupt up to 500,000 barrels per day of output, reinforcing expectations of tighter U.S. supply and offering additional support to prices.
Overall, while near-term crude prices are finding support from seasonal demand and unexpected supply disruptions linked to geopolitical tensions, the broader outlook suggests mounting supply-side pressures heading into 2025, as OPEC+ accelerates production more aggressively than previously anticipated. Although low prices and sanctions are curbing production in the U.S., Iran, and Venezuela, these factors are unlikely to offset the broader upward shift in supply.
I believe oil markets are entering a phase of heightened volatility, with sentiment swinging rapidly as traders react to shifting geopolitical risks, macro uncertainty, and evolving supply-demand dynamics. Without a clear long-term bullish narrative, I continue to favor a strategy of selling into strength – especially during short-term rallies driven more by headlines than fundamentals.
*Dilin Wu Research Strategist at Pepperstone
