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Crude oil prices softened for the second consecutive day on Friday amid expectations of a resumption in U.S. tariffs and weak Chinese demand, ahead of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) meeting scheduled for Saturday (rescheduled from July 6). Energy analysts forecast that the OPEC+ coalition may raise output for August, in line with their commitment to unwind production cuts totalling 2.2 million barrels per day (bpd). Trading activity broadly remained subdued in the absence of American participants, who observed the U.S. Independence Day holiday on Friday.
Data compiled by the leading market intelligence firm Polymerupdate Research showed that benchmark Brent crude futures for near-month delivery on the Intercontinental Exchange (ICE) settled down 0.7 percent, or US$0.50 a barrel, at US$ 68.30 a barrel on Friday, compared to US$ 68.80 a barrel the previous day. Similarly, West Texas Intermediate (WTI) Cushing futures declined by 0.75 percent, or US$ 0.50 a barrel, in early trade to US$ 66.50 a barrel, from US$ 67 a barrel on Thursday.
However, the contract closed unchanged at US$ 67 a barrel on Friday. Despite the week-ending losses, both contracts posted weekly gains, with Brent rising 0.8 percent and WTI Cushing climbing approximately 1.5 percent. The global energy market has shifted focus from geopolitical tensions to fundamentals, primarily centered around demand and supply dynamics.
An analyst from AnandRathi Investment Services commented, “Crude oil edged lower on Friday as concerns over upcoming U.S. tariff actions, a surprise build in inventories, and weak economic signals from China weighed on the demand outlook. Markets have turned cautious ahead of the July 9 tariff deadline, with key trade deals—including those with the European Union and Japan—still pending. A surprise build of 3.8 million barrels in U.S. crude inventories further added to bearish sentiment, highlighting soft consumption trends despite strong headline job growth in June.”
OPEC+ output boost
The group of eight OPEC+ members—Saudi Arabia, Russia, Iraq, the United Arab Emirates (UAE), Kuwait, Kazakhstan, Algeria, and Oman—has unanimously decided to gradually unwind their voluntary production cuts of 2.2 million bpd, with the goal of fully restoring output by the end of 2026. These major OPEC+ producers had implemented the cuts in response to unfavourable market conditions following Russia’s invasion of Ukraine in February 2022, which led to Brent prices plunging below US$ 70 a barrel.
While some coalition members adhered to the output quotas set by the OPEC+ Secretariat, others continued to increase production in a bid to gain market share. The OPEC+ coalition now plans to penalize these violators by allowing higher output, with analysts expecting a further increase of 411,000 bpd starting in August. According to the International Energy Agency (IEA), the group of eight OPEC+ countries has announced three substantial monthly target increases since April 2025, totalling 1.4 million bpd for the May–July period.
Given the current levels of overproduction and capacity constraints, the IEA assesses that only Saudi Arabia has the ability to significantly increase output—bringing an additional 180,000 bpd to the market each month from May through July. OPEC+ is now scheduled to revise its output guidance on July 6, based on evolving market conditions. As a result, the IEA has maintained OPEC+ production levels effective from July 2025 and factored in increased output only for countries producing below their monthly targets and with available spare capacity.
Market fundamentals
According to the EIA’s latest Petroleum Supply Monthly report, a surprise build in U.S. crude inventories further weighed on market sentiment, highlighting weak consumption trends despite strong headline job growth in June. The inventory data painted a bearish short-term outlook. U.S. crude oil stocks rose by 3.845 million barrels last week, defying expectations for a 2 million-barrel draw, while gasoline inventories also increased by 4.188 million barrels. A decline of 1.493 million barrels at the Cushing delivery hub provided only limited support. U.S. crude oil production hit a record high of 13.47 million barrels per day (bpd) in April, slightly above March’s output.
The Paris-based intergovernmental organization, the International Energy Agency (IEA), has projected global oil demand to rise by 0.7 million bpd in both 2025 and 2026, reaching 103.8 million bpd and 104.5 million bpd, respectively. This marks a sharp slowdown compared to the demand increases recorded in recent years. While oil demand rose by 0.9 million bpd to 103 million bpd in 2024, the surges in the previous three years were significantly higher—2.2 million bpd (to 102.2 million bpd), 2.7 million bpd (to 100 million bpd), and 5.7 million bpd (to 97.4 million bpd), respectively.
In contrast, crude oil supply is projected to rise to 104.9 million bpd in 2025, up from 103.1 million bpd in the previous year. The IEA forecasts supply to increase further to 106 million bpd in 2026 and 106.8 million bpd in 2027. Meanwhile, global oil supply to the market—as distinct from production capacity—is projected to grow by 4.1 million bpd, reaching 107.2 million bpd by 2030. Nearly all of the 3.1 million bpd growth projected for non-OPEC+ over the next five years is expected to come from producers in the Americas.
The Government of India has initiated feasibility studies for the construction of three new strategic petroleum storage sites, aiming to more than double the country’s current 40-million-barrel Strategic Petroleum Reserve (SPR). The studies place particular emphasis on the use of salt caverns in the northern state of Rajasthan. As the world’s third-largest crude oil importer, with around 85 percent of its daily consumption dependent on imports, India is prioritizing the expansion of its SPR to enhance energy security.
China rebates ‘teapot’ refineries
The regional government of Shandong has increased fuel oil import tax rebates for independent refiners in the province, refunding between 75 percent and 95 percent of the payable consumption tax on gasoline and diesel, as most ‘teapots’ are operating at just 50–55 percent utilization rates. These refineries are struggling to survive due to U.S. sanctions imposed on multiple occasions.
On May 8, the United States imposed sanctions on China-based independent 'teapot' refinery Hebei Xinhai Chemical Group Co., Ltd., along with three oil terminal operators, for their role in purchasing or facilitating the delivery of hundreds of millions of dollars’ worth of Iranian oil.
In addition, the U.S. has designated numerous firms, vessels, and vessel captains involved in transporting Iranian oil to China as part of Iran’s so-called “shadow fleet,” which is believed to finance Iran’s destabilizing activities and support for terrorist proxies. This marks the third U.S. action against a China-based independent teapot refinery since President Trump issued National Security Presidential Memorandum 2 on February 4, 2025.
Outlook
Crude oil remained under pressure from long liquidation as traders awaited further action from U.S. President Donald Trump on tariffs and their potential impact on global trade.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
