Rising Crude Stocks, Higher OPEC Output May Keep A Lid On Oil Prices

Global oil prices are being kept firmly in check by rising crude inventories and OPEC’s decision to raise oil production.

At 12:37pm EDT on Monday, global proxy benchmark Brent closed at $64.17 per barrel, down $0.1o or 0.14% in Asia. The said level was lower than Friday’s close in the U.K. and U.S., with both markets closed for public holidays on Monday.

The West Texas Intermediate was also down $0.05 or 0.08% to $61.47 in Asia, and largely flat on Friday’s close in a market well short on bullish sentiment of any sort. Furthermore, both benchmarks continue to lurk near four-year lows as forecasters scramble to lower their price predictions for this year and the next.

Steeper declines were only prevented intraday after U.S. President Donald Trump decided to postpone tariffs on the European Union to leave room for further trade negotiations. Its the latest development in a saga that began in April and has raised fears of a global trade war.

Expectations for yet lower oil prices have been furthered by U.S.-Iran nuclear talks and crude producers’ group OPEC+’s decision to hike its output. The latter in particular is having an outsized impact.

The market is currently factoring in a potential third consecutive output hike in July by OPEC+ in region of 411,000 barrels per day. While the producers’ group has declined comment ahead of an impending decision, earlier this month it agreed to up oil production for a second consecutive month, raising output for June by a similar 411,000 bpd level.

The already announced June hike by OPEC+ will take the total combined hikes for April, May and June to 960,000 bpd, or 44% of the 2.2 million bpd of previously agreed cuts since 2022. It is a clear bid for a greater market share at the expense of non-OPEC producers, especially U.S. light sweet crude suppliers.

Rising Inventories, Falling Prices?

However, it is not just higher OPEC+ output and the potential of lower U.S.-Iran tensions that appear to be keeping the market bulls at bay. An uncertain macroeconomic climate and a supply glut exceeding global demand growth, currently in the region of 1 million bpd, are taking their toll too.

This now being duly reflected in the inventory data. Two sets of figures are of particular significance here. First off, according to the International Energy Agency, global oil inventories continue to remain elevated. In its market assessment published on May 15, the IEA said inventories rose for a second consecutive month to 7.7 billion barrels in March.

The figure may be below the five-year average, but the change in market sentiment appears pretty clear. Overall, the IEA currently expects oil inventories to rise by an average of 720,000 bpd this year and by 930,000 bpd in 2026.

Secondly, the usage of floating oil storage is once again on an upward trajectory, a trend that industry data analytics firm Kpler has been keen to point out since January.

Its data suggests the volume of crude oil and products, including refined fuels, in floating storage on tankers for seven days or longer has risen over the past month by 14% to more than 160 million barrels.

Kpler suggests the said level is the highest in two years, with 74 million barrels or 46.25% of the said figure thought to be crude oil. A sizeable chunk of that volume is crude from Iran (40% or 29 million barrels) and Russia (15% or 11 million barrels). Such a development is concerning to say the least.

That’s because storing oil at sea is more expensive than on land and a measure of last resort in extreme cases when onshore storage appears to run out. It typically indicates that oil producers are finding it harder to offload their cargoes because of rising supplies or slowing demand or possibly both.

Read what you will into it, but these multiple signs point to impending lower oil prices over the near-term. More so, as OPEC+ ups the stakes further in a fight for global market share.

Disclaimer: The above commentary is meant to stimulate discussion based on the author’s opinion and analysis offered in a personal capacity. It is not solicitation, recommendation or investment advice to trade oil stocks, futures, options or products. Oil markets can be highly volatile and opinions in the sector may change instantaneously and without notice.