Oil Analysis: supply strategy overshadows price recovery

Oil price bounces back on Monday despite OPEC+ announcing supply increase
By Daniela Hathorn and Kyle Rodda

Over the past several weeks, oil prices—particularly U.S. crude benchmark West Texas Intermediate (WTI)—have demonstrated notable stagnation, fluctuating within a narrow range. Despite periodic intraday advances, the market has failed to secure a daily close above the technical resistance zone of $61.90 to $62, now persisting for nearly three weeks. This indicates a persistent lack of momentum and a strong ceiling that bulls have yet to convincingly overcome.

US Crude (WTI) daily chart

(Past performance is not a reliable indicator of future results)

OPEC+ Strategy: Sacrificing Price for Volume

Recent updates from OPEC suggest a continued ramp-up in output, with a new addition of approximately 411,000 barrels per day now confirmed for July. This follows already substantial increases in May and June. This surge in production appears to reflect a deliberate shift in strategy: producers, notably Saudi Arabia and Russia, are increasingly prioritizing market share and revenue through volume, rather than price.

This strategic shift is likely a response to multiple pressures:

  • Subdued prices have limited revenue gains.
  • Geopolitical considerations, including U.S. lobbying for lower energy prices.
  • Internal cartel discipline challenges, with smaller OPEC+ players like Iraq and Kazakhstan expanding output beyond agreed limits.

 

The approach mirrors a volume-over-price tactic, potentially reinforcing downward price pressure and fuelling concerns about oversupply.

Demand Questions and Economic Uncertainty

However, there is a critical issue underpinning the current dynamic: whether global demand will be sufficient to absorb the increased supply. This is unlikely, given that even under a modestly improved global trade environment, economic activity is expected to moderate. Given oil markets' sensitivity to short-term demand indicators, and the backdrop of slowing global

This introduces a structural imbalance—rising supply meets tepid demand—a scenario historically associated with price weakness.

Technical Perspective and Market Sentiment


From a technical standpoint, the current price pattern reveals a market that remains range-bound, oscillating between $60 and $64 per barrel. The 50-day moving average is acting as a dynamic resistance level. A break above $65 might indicate a potential reversal and renewed economic optimism, but such a breakout has not yet materialized.

The daily candle seems bullish on Monday as WTI has broken above the $62 resistance. However, caution remains as the prevailing market sentiment seems more rooted in speculative hope than fundamental justification. A daily close above $62 could reinforce some short-term buying.

Conclusion: Downside Risks Dominate


The oil market currently faces a situation where:

  • Supply is increasing by design, not accident.
  • OPEC+ producers are actively prioritizing volume gains.
  • Demand-side recovery remains uncertain at best.
  • Geopolitical and economic risks still loom.

 

In such an environment, the upside appears capped while the downside risks remain significant. Unless there is a surprising rebound in global demand or a strategic pullback in supply, oil prices are likely to remain under pressure in the near to medium term.

Capital.com is an execution-only brokerage platform and the content provided on the Capital.com website is intended for informational purposes only and should not be regarded as an offer to sell or a solicitation of an offer to buy the products or securities to which it applies. No representation or warranty is given as to the accuracy or completeness of the information provided.

The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance.

To the extent permitted by law, in no event shall Capital.com (or any affiliate or employee) have any liability for any loss arising from the use of the information provided. Any person acting on the information does so entirely at their own risk.

Any information which could be construed as “investment research” has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.