Oil prices are expected to fall in the coming autumn months due to the emerging oversupply, according to experts.
Supply in the oil market has been on the upside since the Organization of the Petroleum Exporting Countries and allies started to unwind their voluntary production cuts of 2.2 million barrels per day since April.
In April, the eight members of OPEC+ had only agreed to an increase in output by a small amount over 100,000 barrels per day.
However, since May, the members have been increasing production by 411,000 barrels per day each month.
There were more surprises in store last weekend.
Production cuts
The eight OPEC+ countries with voluntary production cuts decided at the weekend to increase oil production by a further 548,000 barrels per day in August.
Supply has increased by a significant 1.9 million barrels per day since April, following the agreed production increase for August.
“This would mean that the majority of the voluntary production cuts would be reversed within five months,” Carsten Fritsch, commodity analyst at Commerzbank AG, said.
The remaining 548,000 barrels per day could possibly be added in September, according to media reports.
OPEC+ would then have already wrapped up all production increases a year ahead of schedule.
“It should be borne in mind that the actual increase in production is likely to be somewhat lower because some countries are already producing more than agreed and the previous excess production is to be offset by compensatory cuts,” Fritsch added.
As per the mid-April agreement, compensatory cuts of 500,000 barrels per day are to be implemented in August, relative to the initial production level.
Fritsch said:
However, this is questionable in the case of Kazakhstan, as the country is already producing significantly more than planned for August and has shown no willingness to reduce production.
Demand factor
“While concerns over rising supply have flattened the curve beyond the summer, prompt prices continue to find support from an expected demand peak in August 2025,” Mukesh Sahdev, chief oil analyst at Rystad Energy, said in an emailed commentary.
Stronger oil demand during the summer months is currently benefiting OPEC+.
This is primarily due to the US summer driving season, which represents the year’s peak demand period.
Countries bordering the Persian Gulf, which are oil-producing nations, are experiencing increased oil consumption.
This rise is attributed to a greater demand for electricity, primarily to power air-conditioning systems, according to Commerzbank.
Commerzbank’s Fritsch said:
Without an adjustment in production volumes, this would have led to an undesirable decline in oil exports.
Meanwhile, Saudi Arabia increased its official selling prices for Arab Light oil shipments to Asian customers by $1 per barrel in August, reaching a four-month high.
This stronger-than-anticipated price hike indicates robust demand in Asia.
Post summer months
The question remains about whether the oil market could absorb the increased barrels from OPEC+ after September.
“Looking ahead to October, as crude demand fades and non-OPEC+ supply forecast to grow by 1.4 million barrels per day in 2025—starts to weigh on market balances, Brent could drift toward the $60 per barrel range,” Sahdev said.
At the time of writing, the price of Brent crude on the Intercontinental Exchange was around $70 per barrel. The West Texas Intermediate crude oil was $68 a barrel.
Forward curves clearly illustrate the trend of oversupply in the oil market, showing a notable decline over the next 12 months.
This reflects market expectations of lower oil prices, with a particularly strong backwardation evident until the end of the year.
“The OPEC+ countries are apparently also betting that a lower price level will lead to a decline in oil supply outside OPEC+ and thus reduce the oversupply. Shale oil producers in the US are likely to be the main focus here,” Fritsch said.
US crude oil production peaked in April, eight months earlier than anticipated, according to last month’s forecast by the US Energy Information Administration.
Concurrently, a recent Dallas Fed survey revealed a decline in sentiment among Texas energy companies—the leading state for US oil production—during the second quarter, alongside a decrease in the oil production index.
What could prevent prices from falling?
Numerous elements could contribute to maintaining prices above the $60 per barrel threshold.
OPEC+ may not fully meet its increased production targets, which could support prices. Additionally, output from non-OPEC+ members is anticipated to decrease by year-end.
Healthy margins are likely to encourage Middle Eastern refiners to prioritise domestic refining, leading to increased exports of refined products over crude.
Rystad Energy expects the market narrative to evolve from concerns about member disunity and non-compliance to a focus on increased cohesion and compensatory production cuts.
Geopolitical factors, specifically further sanctions on Russia, Iran, or Venezuela, could introduce an additional premium.
Sahdev said:
Finally, if the market begins to flirt with contango, OPEC+ will likely announce fresh cuts.
The group’s decision to raise targets now may be a strategic move to allow for production cuts later.
This increase makes it easier to justify reductions during the period of weaker refinery demand, typically observed between September and November.
However, Commerzbank believes, “a reversal of the agreed production increase after a short period of time would cast a bad light on OPEC+’s decision and can therefore be considered unlikely.”
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