Jun 03, 2025 (Baystreet.ca via COMTEX) --
This weekend, OPEC+ agreed to add another 411,000 barrels daily to its combined output. The decision came amid expectations of a bigger hike that had weighed on energy stocks prior to the latest meeting of the group. But that wasn't all. Following the OPEC+ decision, oil prices actually jumped. The oil market "just remembered that geopolitics exists." That OPEC+ was going to raise its output for another month was already clear, so the hike was not really a surprise. It had the potential to hurt energy stocks because of a perceived imbalance between demand and supply, with the latter exceeding the former, just like the previous two hikes. What many appeared to forget while discussing how energy stocks have trended down lately because of OPEC+ was geopolitics. Last week, Ukrainian forces stepped up their attacks against targets in Russia significantly, especially during the weekend. The escalation comes ahead of yet another attempt to discuss peace in Istanbul, which right now looks more or less doomed to failure. But what it did was remind energy investors that not all is settled in Ukraine--very far from it, in fact. And this means the geopolitical factor for oil prices is very much alive. "Oil is trading as if it has just remembered that geopolitics exists," SPI Asset Management managing partner Stephen Innes wrote in a note cited by MarketWatch this weekend. "Moscow has been provoked on a strategic level, and markets should brace for a forceful Russian retaliation," Innes added. Bloomberg, meanwhile, argued at the end of last week that energy investors were awaiting the weekend meeting of OPEC+ "with a sense of dread, expecting another super-sized supply boost at a time when prices are already low." It was an unfortunately timed article given the price move following the OPEC+ announcement--because the author had probably forgotten about geopolitics. Another argument could be made, however. This is the argument that oil traders have already gotten used to OPEC+'s new strategy, which seems to focus on regaining market share, and no longer itching to exit their position every time OPEC+ gathers for a conference call. U.S. shale growth is slowing, which has prompted revisions in oil market balance forecasts--and it should also prompt revisions of price projections. The bearish sentiment is still quite strong--especially among media commentators. Reuters' Clyde Russell, for instance, argued in a recent column that OPEC+ leaders may have agreed to bring more oil to the market, but suggested there was not enough demand for this oil. Russell focused on Asia as the source of the biggest oil demand growth, pointing to import numbers suggesting softer demand this year compared to last. This softer demand may have a lot to do with oil prices, as suggested by a pickup in imports amid the oil price rout, rather than with a structural decline. According to Bloomberg, energy was the worst-performing industry on the stock market in the second quarter of the year, with the publication citing President Trump's tariff offensive as one reason and the increased risk of recession as a result of that offensive as another. "The path of least resistance is still pointing lower in an oil market largely being governed by supply-side dynamics," RBC Capital Markets' Helima Croft said in a note last week. It was precisely because of the supply-side dynamics that oil actually rose following OPEC+'s production decision for July. A further escalation between Russia and Ukraine could involve the latter targeting oil infrastructure, as it did earlier this year, or the U.S. stepping up sanctions against Russia and also targeting its oil industry. Of course, there is also the worst-case scenario of European countries, maybe even the United States, getting even more directly involved in the war, which would also have direct implications for the supply security of crude oil and, as such, affect prices. As regards the laments about energy stocks and their recent movements, it may be worth noting here that the stock market is a dynamic place, often governed by perceptions, speculation, and, most recently, software algorithms with little to no connection to the physical world. Events in the physical world, however, sooner or later prompt corrections on the stock market if it gets too detached/ Right now may be such a time. The oil market is well supplied, indeed, but the assumption of a major global surplus may turn out to be quite wrong--not least because it was in large part based on another assumption, that of relentless U.S. shale growth. Geopolitics does not tend to feature prominently in most of these forecasts. All in all, they follow the same pattern of EV sales weakening oil demand while supply rises, and how that's bad for prices. But in addition to the Ukraine war, there are supply security uncertainties in places like Libya and Iran, as well. The fact that these uncertainties continue to affect oil prices suggests the EVs-and-surplus refrain might need changing. By Irina Slav for Oilprice.com
COMTEX_466049468/2559/2025-06-03T06:58:08
