Why the Oil Price Recovery Fizzled Before Gaining Momentum?

油价跌至每桶70美元之际,哪些石油股还值得考虑?
Published on: Jul 3, 2025
Author: Caroline Kong

Crude oil prices remain subdued near $68/barrel despite recent Middle East tensions, as markets grapple with oversupply fears and weakening demand signals. The disconnect highlights a fundamental shift in oil market dynamics.

The conflict between Iran and Israel a week ago had caused global concern about the disruption of shipping in the Strait of Hormuz, while international oil and gold prices have been unusually calm. The market seems to believe that the crisis will not materially affect the oil supply.

While geopolitical premium subsides, oil market seems back to the “safe zone”. The Strait of Hormuz bear 30% of the world’s seaborne oil trade, but the fact that the conflict did not escalate allowed traders to quickly digest the risk premium. Analysts point out that the blockade of this key waterway is equally lethal to Iran’s own revenues – the country exports more than 1 million barrels of crude oil per day through the strait.

However, this “safe zone” is only relative. Saudi Arabia needs oil prices to reach $90 in order to break even, while the break-even line for countries like the UAE ($50) and Qatar ($44.7) is much lower. While current prices meet the basic needs of most producers, they do not support key transformation programmes such as Saudi Arabia’s Vision 2030.

The International Energy Agency’s (IEA) latest forecasts show that global crude oil production will reach 104.9 million barrels per day (bpd) in 2025, and further increase to 106 million bpd in 2026, while the demand for the same period is only 103.76 million bpd and 104.5 million bpd, respectively. More critically, OPEC+ could approve a new round of production increases at its meeting on 6 July, or add another 411,000 barrels per day to supply.

Analysts at energy consultancy Rystad noted that “it’s like a game against the clock, with production increases in non-OPEC countries and a resurgence in U.S. shale oil offsetting efforts to cut production.” Data showing that emerging oil-producing countries such as Brazil and Guyana have increased their exports by more than 15 per cent year-on-year in the first half of the year.

The OECD recently cut its global GDP growth forecast from 3.1 per cent to 2.9 per cent in 2025, and to 3.0 per cent in 2026.

Notably, the weak recovery in aviation paraffin demand has become a new pitfall. Global air traffic remains 5% below 2019, while rising electric vehicle penetration is continuing to squeeze demand for transport fuels – China’s apparent consumption of petrol and diesel slumped 1.8% year-on-year in the first five months of the year.

Despite the current negative supply and demand side dominating, the Middle East situation is still likely to be the biggest variable driving oil prices. Israel and Lebanon Hezbollah exchanges of fire frequency rise, the Red Sea shipping crisis continues, any unexpected events may overturn the market logic.

A Singapore crude oil futures trader said, “Now it’s like sitting in the crater of a volcano trading, the algorithmic model has been unable to predict the geopolitical risks, we can only keep a close eye on the oil tanker tracking data in the Strait of Hormuz.”

“With inventory builds and softening PMIs, the market’s pricing in a ‘wait-and-see’ approach,” said Energy Aspects’ Amrita Sen. “Unless OPEC+ surprises with restraint or Middle East tensions escalate, $70 looks like a near-term ceiling.”

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