Oil's Hidden Crisis: Why the Glut Could Sink Prices Despite the Trade Truce

The recent U.S.-China trade truce has sparked optimism about global oil demand, but a closer look at the market reveals a far murkier picture. OPEC+’s aggressive production hikes, unresolved compliance issues, and lingering tariff uncertainties are creating a perfect storm of oversupply risks. Meanwhile, technical indicators suggest crude’s recent rebound has hit an overbought ceiling. For investors, the writing is on the wall: the near-term outlook is bearish, and profit-taking above $63/bbl is a must.

OPEC+'s Output Hikes: Fueling the Glut

OPEC+’s May 3 decision to boost production by 411,000 barrels per day (bpd) in June marks a critical escalation of its supply strategy. While framed as a response to overproduction by members like Iraq and Kazakhstan, this move risks exacerbating an already oversupplied market. The group’s flexibility clause—allowing pauses or reversals if conditions sour—is a red flag. It suggests even OPEC+ recognizes the fragility of its pricing power.

The deeper issue lies in non-compliance. Since January 2024, Iraq and Kazakhstan have overproduced by 220,000–270,000 bpd, and their compensation plans remain unfulfilled. These unresolved gaps mean the actual supply in 2025 could exceed official targets by nearly 1 million bpd. With global inventories already 2.3% below the five-year average, this oversupply is not just theoretical—it’s a ticking time bomb for prices.

The Trade Truce: A False Dawn for Demand?

While the U.S.-China trade truce has eased near-term fears of a demand collapse, it does not erase structural headwinds. Manufacturing sectors in both nations remain sluggish, and lingering tariffs on intermediate goods—such as petrochemicals used in plastics—continue to crimp demand.

Even if trade flows normalize, broader macroeconomic trends are grim. The U.S. GDP growth forecast was slashed to 1.5% for 2025, and China’s energy-intensive industries are shifting toward renewables and electric vehicles (EVs). EVs now account for 18% of global vehicle sales, siphoning demand from oil. OPEC+’s hope that the truce will spark a demand surge is built on shaky ground.

Technical Indicators: The Overbought Ceiling

Crude’s recent rebound to $62.29/bbl has been driven by short-term support levels and bullish momentum. However, the Relative Strength Index (RSI) now signals a critical inflection point. After cooling from extreme overbought territory, the RSI is still in a cautionary range, suggesting the rally lacks sustainable momentum.

The 50-day EMA ($60.32) remains a critical floor, but resistance at $65 is formidable. A sustained breach above $65 would require a demand miracle—unlikely given the supply glut. More probable is a retest of $60 support, with further downside if OPEC+ compliance fails or geopolitical tensions escalate.

The Contrarian Play: Sell Before the Slide

The data is clear: oversupply is winning, and technicals are flashing warnings. Investors holding long positions in WTI above $63/bbl should take profits immediately. Shorting the futures market or using inverse ETFs (e.g., DNO) can capitalize on the coming correction.

While OPEC+ insists it can “balance” the market, its members’ divergent fiscal needs (Saudi Arabia’s $62/bbl breakeven vs. Nigeria’s $100/bbl) ensure internal discord. Add U.S. shale’s relentless production growth (13.3 million bpd in 2025) and the relentless rise of renewables, and the case for a bearish stance is unassailable.

Conclusion: The Glut Isn’t Going Anywhere

The trade truce has bought OPEC+ time, but it cannot mask the reality of oversupply. With production hikes, non-compliance, and structural demand shifts combining to weigh on prices, the next move for oil is down. Investors who ignore the technical and fundamental warnings now risk being left holding the bag when the market finally corrects. Act fast—profit-taking above $63/bbl is not just prudent; it’s necessary.