Oil prices plummet as demand falls amid supply glut

Oil prices remain in a precarious state, caught in a perfect storm of rising supply and faltering demand.

After a fleeting spike above $80 per barrel in mid-June, driven by Middle East tensions, Brent crude has tumbled to $67.76, with the September contract barely clinging to $66.97.

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US West Texas Intermediate (WTI) settled at $65.61, marking an 11.27 per cent weekly plunge — the steepest since the 2020 pandemic-driven collapse. This sharp decline signals a broader shift in market dynamics, with oversupply concerns and fading geopolitical risks reshaping the outlook for 2025.

The immediate pressure stems from Opec+, the coalition led by Saudi Arabia and Russia, which is set to increase output again in August after incremental hikes since May. Sources within the group confirmed to news agencies that a 411,000-barrel-per-day increase is on the table for the July 6 meeting, part of a strategy to unwind nearly one million barrels per day of voluntary cuts. This move has rattled markets, particularly as some members, like Kazakhstan, are already exceeding quotas. Kazakhstan’s Tengiz field, bolstered by Chevron-led expansions, has pushed output to a record 1.86 million barrels per day—390,000 above target. This supply surge has left traders wary, with fears that inventories will swell further, capping any price recovery.

According to oil market experts, traders are bracing for continued bearish momentum, with oil markets teetering on the edge of oversupply. As inventories climb and demand falters, the road to recovery looks increasingly uncertain, leaving oil prices vulnerable to further declines, they argue. “The fundamentals are misaligned for a sustained rally,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. “Rising inventories and slowing demand are anchoring prices, and without a significant catalyst, we could see them drift lower.” Analysts suggest that even holding the $70 threshold may prove challenging absent a major disruption or policy shift.

Geopolitical risks, which briefly propped up prices in June, have largely evaporated. A surprise ceasefire between Israel and Iran on June 24 erased a $10-per-barrel risk premium. Despite earlier concerns about a potential blockade of the Strait of Hormuz—a vital conduit for 20 per cent of global oil flows — Iranian exports of 1.7 million barrels per day remained steady, and tanker freight rates normalized quickly. “Markets now see further escalation as unlikely,” said Giovanni Staunovo, energy analyst at UBS. “Geopolitical support for prices has effectively vanished.”

Compounding the bearish outlook is a weakening demand picture. The International Energy Agency (IEA) slashed its 2025 global oil demand growth forecast to 720,000 barrels per day, while the US Energy Information Administration (EIA) revised its estimate to 800,000 — among the lowest projections in years. China, the world’s largest crude importer, is driving this slowdown, with demand growth plummeting to 155,000 barrels per day. The country’s rapid adoption of electric vehicles, expanded high-speed rail, and shift from heavy industry to services are curbing oil consumption. In the US, the Federal Reserve’s decision to hold interest rates at 4.25–4.50 per cent amid a downgraded GDP growth forecast of 1.4 per cent has further dampened fuel demand expectations.

Even tightening US inventories have failed to lift sentiment. The EIA reported a 5.8 million-barrel draw in crude stocks, with Cushing, Oklahoma inventories nearing operational minimums. Yet, refinery utilisation dropped to 86 per cent, and gasoline crack spreads fell below five-year averages, reflecting weak refining margins and lackluster fuel demand. “The market is grappling with a structural oversupply,” said Tamas Varga of PVM Associates. “If Opec+ keeps adding barrels, prices have little room to climb.”

The broader commodity landscape mirrors this turmoil. Ole Hansen, head of Commodity Strategy at Saxo Bank, noted extreme volatility in energy markets, with Brent crude surging over 30 per cent earlier this year before its recent collapse. This triggered swift liquidation by hedge funds and trend-following managed money, not only in oil but also in metals and agriculture, dragging down the Bloomberg Commodities Index.

According to analysts, the market faces a daunting supply-demand imbalance. Non-Opec+ producers like the US, Brazil, Canada, and Guyana are ramping up output, adding to the glut. Without a significant disruption—be it a natural disaster, geopolitical flare-up, or unexpected policy intervention — prices may remain subdued well into 2025.

Issac John

Issac John is Managing Editor at Khaleej Times and has over 45 years of experience in top-tier newspapers across UAE. A seasoned business writer and economic analyst, he brings unmatched insight into the geopolitics and geoeconomics shaping the Gulf and India.

issacjohn@khaleejtimes.com