Oil Prices Climb Temporarily Amid Persistent Supply Pressures and Trade Uncertainty

The oil market has entered a period of heightened volatility, with prices clawing back modest gains this week after a sharp decline in early April. However, the trajectory remains clouded by a toxic mix of oversupply, geopolitical risks, and unresolved trade tensions. While Brent crude traded near $65/bbl on April 24—up slightly from its multi-year low of below $60/bbl—the week’s closing position is likely to show a net decline, underscoring the fragility of an already strained market.

The Supply Overhang: A Perfect Storm of Overproduction and Growth

The OPEC+ coalition faces an internal credibility crisis as member states consistently exceed their production targets. Kazakhstan’s output surged to 1.8 mb/d in March—390 kb/d above its quota—thanks to the Tengiz oilfield expansion. Similarly, Iraq and the UAE overproduced by 440 kb/d and 350 kb/d, respectively. These overruns, combined with 8 OPEC+ members accelerating the unwinding of voluntary cuts, have flooded the market with excess supply. Even the planned 411 kb/d output increase for May pales in comparison to the 1.2 mb/d overproduction already occurring.

Meanwhile, non-OPEC supply is set to grow by 1.3 mb/d in 2025, led by Brazil’s +240 kb/d, Guyana’s +160 kb/d, and Canada’s +120 kb/d. The U.S., once a growth engine, has seen its shale output forecast cut by 150 kb/d to 490 kb/d, as producers grapple with $65/bbl breakeven costs and tariffs on steel and drilling equipment.

Trade Wars and the Demand Drag

The U.S.-China tariff war has become the market’s Achilles’ heel. U.S. tariffs on $5.2 billion of Chinese imports and Beijing’s retaliatory measures—such as a 34% levy on U.S. crude—have depressed global demand forecasts. The IEA revised 2025 oil demand growth down to +730 kb/d, a 30% cut from earlier estimates, citing trade-driven economic slowdowns. Even U.S. gasoline prices—projected to average $3.10/gallon this summer—reflect the pressure on prices at the pump.

Geopolitical Risks: From the Middle East to the Elections

While the Russia-Ukraine war has stabilized, Middle East tensions loom large. Iran’s nuclear talks with the U.S. inch forward, but a deal would likely add +500 kb/d of Iranian supply to global markets. Meanwhile, the Israel-Hamas conflict risks disrupting regional exports. On the macro front, the U.S. election in 2024 (postponed to 2025 due to Biden’s withdrawal) could reshape energy policies: a Trump victory might shift sanctions focus to China, while Biden would prioritize climate partnerships.

Market Structure: Contango Signals Oversupply Ahead

The crude forward curve has shifted into contango for contracts beyond mid-2026, signaling expectations of a +273 kb/d surplus by year-end 2025. This contrasts with short-term backwardation, reflecting a market balanced now but bracing for a glut later. Inventories, already near the lower end of the five-year range, are building steadily, with non-OECD crude stocks up 41.2 mb in February alone.

Investor Implications: Navigating the Crosswinds

1. Short-Term Bets: Traders might capitalize on $60–$65/bbl support, but the path to higher prices is fraught with OPEC+ compliance risks and geopolitical flare-ups.
2. Long-Term Outlook: The $55/bbl target set by Goldman Sachs for end-2026 appears plausible as non-OPEC supply outpaces demand growth (+690 kb/d in 2026 vs. +960 kb/d supply).
3. Portfolio Strategy: Investors should hedge against downside risks by shorting oil ETFs (e.g., USO) or longing inverse ETFs (e.g., DNO).

Conclusion: A Market on Borrowed Time

The recent rebound to $65/bbl is a temporary reprieve in a market increasingly defined by oversupply and policy missteps. With OPEC+’s discipline eroding, non-OPEC projects ramping up, and trade wars stifling demand, the $50–$60/bbl range is becoming the new reality. Investors must prepare for prolonged volatility, with prices likely to test $55/bbl by year-end 2025 if current trends persist. The oil market’s “bumpy ride” is just beginning.