After two days of gains, crude oil prices have stabilized, driven by the resumption of shipping through the Strait of Hormuz and signals from OPEC+ about increasing supply, which have heightened market concerns over a potential surplus.
At the start of the week, Brent crude held near $72 per barrel, while WTI remained above $69.
On Sunday, there were signs of recovery in oil and gas shipments along a U.S.-protected corridor in this critical energy chokepoint, following unexplained turnarounds and diversions by several vessels the previous day.
Additionally, OPEC+ members have supported another modest increase in production quotas next month, with seven countries led by Saudi Arabia and Russia agreeing to raise output by 188,000 barrels per day, further scaling back the production cuts implemented years ago.
For now, these additional volumes are still theoretical, but the group's decision indicates a desire to boost output as conditions continue to normalize.
Brent crude prices plunged 30% in the second quarter after a temporary peace deal between the U.S. and Iran paved the way for a rapid, though not yet complete, resumption of traffic through the Strait of Hormuz.
Against this backdrop, Wall Street investment banks are forecasting potential for further significant price declines in the second half of the year.
Citi has noted that prices could potentially retreat to $60 by the end of the year.
Analysts at RBC Capital Markets, including Helima Croft, stated in a report that OPEC countries affected by conflict are "in rebuild mode for both production and exports."
However, they believe "the market has little appetite for a supply-driven price reset."
Major producers in the Persian Gulf have been rapidly increasing their output.
Saudi Arabia's exports have surged to near pre-conflict levels as its tankers transit the Strait of Hormuz.
The United Arab Emirates, which left OPEC during the conflict, has also resumed its supply shipments.
Traders will closely monitor the official selling prices (OSPs) announced this week by Saudi Arabia, the UAE, and other producers as they attempt to push more product back into the market.
For July, Riyadh reduced the premium for its key Arab Light crude grade bound for Asia to $9.50 per barrel, down from $15.50 in June.
As a sign of recent market loosening, the time spreads for benchmark Brent and Dubai crude have shifted into a bearish contango structure, where near-month contracts are priced lower than those for future delivery.
Many crude grades in the physical market are also trading at discounts to their underlying benchmark prices.
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