Morning Highlights: Oil steady as Middle East risks ease; OPEC+ output boost in focus

Oil prices were largely steady early Monday as traders weighed easing geopolitical tensions in the Middle East, signs of slower global demand, and the prospect of a possible OPEC+ production hike in August.

Market snapshot (as of 6:45 EST):

• Brent (Aug): $67.56 (–$0.21)

• Brent (Sep): $66.66 (–$0.14)

• WTI (Aug): $65.28 (–$0.24)

Brent and WTI last week posted their biggest weekly declines since March 2023 as the risk premium from the Israel-Iran war collapsed. Even so, both benchmarks remain on track for a second consecutive monthly gain of more than 5% after prices spiked above $80 mid-June.

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Market sentiment: Range-bound trade returns

"The market is back to a range-trading environment that is likely to continue until new economic growth concerns emerge or supply disruptions materialize," said UBS analyst Giovanni Staunovo.

Middle East tension fades:

• A 12-day war that began when Israel struck Iranian nuclear facilities saw oil surge before falling back below $70.

• The ceasefire has held for more than a week, allowing traders to refocus on fundamentals.

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OPEC+ expected to boost output

Attention is turning to the July 6 OPEC+ meeting, where the group is widely expected to increase production by another 411,000 bpd in August, matching the incremental hikes of the past three months.

"If OPEC opted for another output increase in August, global and OECD oil inventories would start swelling, potentially preventing any further upside in prices," said PVM analyst Tamas Varga.

Reuters quoted OPEC+ sources suggesting the group could even consider larger additions to output.

Energy Aspects analyst Richard Bronze told Reuters:

"We do think the group is most likely to still go ahead with the August accelerated unwinding."

Current supply backdrop:

• OPEC output rose modestly in May, but gains were limited as several countries cut production to compensate for prior overproduction.

• Saudi Arabia and the UAE increased output less than their full allowances under the current deal.

• Staunovo noted that actual exports have remained stable despite headline production increases, providing some support to the market.

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China demand concerns weigh

Bearish pressure also persists amid uncertainty over Chinese demand:

• China’s June PMI edged up to 49.7 from May’s 49.5 but remained in contraction territory for the third straight month.

• “Uncertainty around global growth continues to cap prices,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.

• Economist Intelligence Unit analyst Xu Tianchen added that the modest improvement was noteworthy, given June was the first full month without Trump's 100%-plus tariffs.

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U.S. drilling slowdown continues

In the U.S., rig counts fell again last week, reflecting tepid investment appetite despite resilient demand:

• Oil rigs: –6 (now 47 fewer than a year ago)

• Gas rigs: –2

• Total rigs: –34 year over year

"The rig count decline continues to highlight capital discipline across U.S. producers," ING analysts said in a note.