Oil Analysis: supply strategy overshadows price recovery

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.