Crude oil prices saw a slight uptick at the start of the week, even as a host of factors suggested a potential downturn. While the OPEC+ group increased its output by 137,000 barrels per day (bpd)—slightly less than anticipated—the possibility of new sanctions against Russia took centre stage, temporarily overshadowing the expected market impact of the production increase.
With the latest output hike, many analysts believe the market is now well-supplied, with some even forecasting an oil glut. This is compounded by the United States, the world's largest oil producer, which continues to ramp up production, a trend reflected in the rising US rig count.
Last week, crude oil prices dropped following significant US crude stock builds reported by both the American Petroleum Institute (API) and the Energy Information Administration (EIA). These inventory reports are a key factor in the US, the world's largest oil consumer, and they typically put downward pressure on prices. The OPEC+ output hike further contributes to this bearish sentiment.
However, prices rose about 1.8% on Monday after President Trump stated he would consider new options to "punish" Russia for not pursuing peace on his terms. This sparked speculation that the Trump administration might impose stricter measures on Russian oil exports. Yet, this is easier said than done, as major buyers like China and India have shown no sign of complying with such sanctions. For example, India, the world's fourth-largest economy, did not retaliate or bow down to a 50% tariff on its goods, demonstrating its resolve.
Meanwhile, in China, the world's top crude oil importer, the manufacturing Purchasing Managers' Index (PMI) only rose by a modest 0.1%, from 49.3 to 49.4. Although this figure remains below the 50% threshold—indicating that the manufacturing sector is still in a state of contraction—the slight increase was enough to generate a positive sentiment in the oil markets.
As crude oil stocks continue to rise and both OPEC+ and non-OPEC members increase their output, some investment bankers are beginning to predict prices could fall below $60 a barrel. This would be a significant blow to many producers, including Saudi Arabia, the world's top oil exporter, as its break-even price is substantially higher than that value.
