Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
Crude prices steady as OPEC+ fast-tracks output hike
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Crude prices have shown only a muted response to latest OPEC8+ bigger-than-expected production increase
- In a separate development, Saudi Aramco announced price hikes across all regions for August deliveries, signalling underlying strong demand for its barrels
- In the short term, downside risks to crude appear contained. Compensation cuts from previous overproduction are helping offset new supply, while geopolitical uncertainty in the Middle East continues to discourage aggressive short positioning by speculators
Crude prices have shown only a muted response following the weekend announcement that eight OPEC+ members will increase production more than expected starting in August. Citing a “steady global economic outlook and healthy market fundamentals,” the group plans to raise output by 548,000 barrels per day—an acceleration of the unwinding of the 2.2 million b/d cuts introduced in 2023. A similar increase is now expected in September, completing the rollback a full year ahead of schedule.
Brent crude trades near unchanged following an early dip to USD 67.20, and following the recent Middle East crisis-led pump and dump, prices have now settled into a relatively tight range, with Brent as per the chart finding resistance around USD 69 and WTI around USD 67.5.
In a separate development, Saudi Aramco announced price hikes across all regions for August deliveries, signalling underlying strong demand for its barrels. By next month, Aramco will be producing 9.76 million barrels per day—up 800,000 year-to-date, though still 1.3 million below its 2022 peak. The decision to raise prices during the peak summer demand season signals that physical markets remain tight, suggesting the additional barrels can be absorbed—for now. OPEC+’s move to accelerate production appears to send a clear message to U.S. shale and other non-OPEC+ producers: the group is willing to tolerate lower prices in the short term to defend and grow its share of global output. While this may offer near-term relief for the White House in the form of softer fuel prices at the pumps, it poses challenges for U.S. producers already contending with rising costs. The latest Dallas Fed Energy Survey underscores this vulnerability. When asked how they would respond to WTI at $60 over the next 12 months, 60% of 85 polled U.S. exploration and production firms said they would slightly reduce output, while 10% expected a significant cut. At $50, nearly 90% indicated a pullback—highlighting a potential price floor below which U.S. supply would decline, ultimately leading to a rebalancing in the market. In the short term, downside risks to crude appear contained. Compensation cuts from previous overproduction are helping offset new supply, while geopolitical uncertainty in the Middle East continues to discourage aggressive short positioning by speculators. Meanwhile, recent upside surprises in U.S. economic data support a steady demand outlook. However, trade tensions and seasonal demand softening into autumn could emerge as headwinds in the months ahead. Managed money accounts or hedge funds have struggled as of late to hang onto positions, both long and short. Given the relative extreme moves in crude oil recently, rallying hard as the geopolitical risk premium rose in response to the Iran-Israel war, only tumbled following a US-brokered ceasefire ease supply disruption concerns. The weekly COT update from the ICE Europe exchange shows the recent gyration in Brent crude positioning. Rising 175,600 contracts during a six week period to 17 June, only to collapse by 106,500 contracts in a two week period to last Tuesday, 1 July, as tensions eased and traders turned their attention to the prospect of another bumper OPEC+ production increase. As we approach the summer holiday period, trading activity will suffer and positions will be kept to a minimum.
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