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Oil prices extended their decline on Monday after OPEC+ agreed to raise production for a fifth straight month and exports through the Strait of Hormuz continued to recover, easing fears of a prolonged supply shock in one of the world’s most important energy corridors.
Benchmark Brent crude fell below $72 a barrel, while West Texas Intermediate (WTI) traded near $68 a barrel, with traders increasingly betting that global oil supplies will outpace demand in the coming months.
The fall marks a sharp reversal from the price spikes seen earlier this year when conflict involving Iran disrupted shipping through the Strait of Hormuz, a narrow waterway that carries around one-fifth of the world’s oil consumption.
With exports gradually resuming and more crude set to enter the market, investors are now turning their attention from geopolitical tensions to the possibility of a supply glut.
OPEC+ opens the taps again
The latest trigger came on Sunday, when OPEC+ agreed to increase production targets by 188,000 barrels per day (bpd) from August.
The move follows similar quota increases announced for June and July as the producer alliance continues unwinding voluntary production cuts introduced in 2023 to support oil prices.
The seven countries leading the production increases — Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman — have now restored nearly 800,000 bpd of output between April and July.
If another increase of a similar size is approved at the group’s next meeting in August, most of the production cuts agreed in 2023 would have been reversed.
Strait of Hormuz returns to normal
Another reason behind the latest decline in crude prices is the improving flow of oil through the Strait of Hormuz.
The strategic shipping lane had witnessed disruptions after military tensions in the region prompted several tankers to change course or delay voyages. Since the ceasefire and diplomatic efforts to reduce tensions, oil and gas shipments have gradually resumed through the US-protected maritime corridor.
That is particularly significant because major oil exporters including Saudi Arabia, Iraq and Kuwait depend on the Strait of Hormuz to ship crude to global markets.
As the risk of prolonged supply disruptions has faded, so has the geopolitical premium built into oil prices.
Why are prices falling despite lower production?
At first glance, the decline in prices may seem surprising because OPEC’s own data show that production remains below levels seen before the conflict.
The group’s output fell to 33.13 million barrels per day in May, compared with 42.77 million bpd in February, reflecting the impact of disruptions caused by the regional conflict.
However, commodity markets price future expectations as much as current supply.
Investors are increasingly convinced that production will continue recovering in the months ahead as exports normalise and OPEC+ steadily increases output.
A memorandum of understanding between Washington and Tehran aimed at ending the conflict has further strengthened expectations that oil supplies will eventually return to normal.
Weak demand is adding to pressure
The supply story is only one side of the equation.
Demand has also remained weaker than many traders had expected.
China, the world’s largest crude importer, has reported softer oil imports in recent months as economic growth remains uneven and industrial activity slows.
At the same time, oil production outside OPEC+, particularly from countries in the Americas, has remained resilient, increasing competition in global markets.
The International Energy Agency (IEA) has also coordinated a record release of strategic petroleum reserves, further boosting available supplies.
Taken together, these developments have outweighed concerns over West Asian geopolitical risks.
From $120 back to pre-conflict levels
At the height of the conflict, Brent crude surged above $120 a barrel as traders feared a prolonged closure of the Strait of Hormuz.
Those fears have since eased.
Prices have now retreated to levels broadly similar to those seen before the conflict escalated, reflecting expectations that global supplies will remain adequate despite lingering regional tensions.
Analysts say the market’s immediate focus has shifted from geopolitics to the balance between supply and demand.
Challenges remain for OPEC+
While the alliance continues raising production, it also faces internal pressures.
The United Arab Emirates exited the production agreement earlier this year to pursue output levels more closely aligned with its production capacity. Meanwhile, Iraq has indicated that it wants higher production quotas, highlighting differences among members over future supply policy.
Even so, OPEC+ has so far maintained its strategy of gradually restoring output while monitoring market conditions.
For consumers, lower crude prices could eventually translate into reduced fuel costs if the trend persists. For oil-producing nations, however, sustained weakness in prices could put pressure on government revenues, particularly if demand fails to recover as expected.
The coming weeks will therefore be crucial. If oil exports through the Strait of Hormuz continue to normalise and OPEC+ proceeds with further production increases while demand remains subdued, crude prices could remain under pressure for the rest of the summer.
With inputs from agencies.
