Geopolitical risk and supply-demand game may lead to sustain

The US military recently launched an attack on Iran, adding uncertainty to the ceasefire agreement between the two sides and causing a significant increase in international oil prices. Analysis has pointed out that although geopolitical conflicts have once again pushed up oil prices, the increase in production by "OPEC+", weak global demand, and the growth of non OPEC oil producing countries have jointly raised expectations of loose market supply, putting downward pressure on international oil prices in the medium and long term. Once the situation eases, the operational logic of the international crude oil market will inevitably shift from wartime supply shortages to supply-demand rebalancing.

 

On the supply side, multiple factors are driving OPEC+to increase production. The Organization of the Petroleum Exporting Countries (OPEC) previously issued a statement stating that seven major OPEC+oil producing countries, including Saudi Arabia and Russia, have decided to continue increasing their daily crude oil production by 188000 barrels in August. This is the fifth consecutive month that major oil producing countries have announced an increase in production quotas.

 

In addition, non OPEC oil producing countries such as the United States and Brazil continue to increase their production, with an expected daily increase of approximately 1.15 million barrels in 2026.

 

From the market reaction, Brent crude oil futures prices have fallen sharply from the high point of nearly $119 per barrel during the Iran conflict. In this context, OPEC+insists on gradually increasing production, not driven by a single market signal, but rather the result of factors such as changes in supply and demand fundamentals, easing geopolitical tensions, and balancing internal differences.

 

On the demand side, the pace of recovery is clearly slower than that of the supply side, and the market is moving from supply shortage to potential surplus. Due to the weak manufacturing industry in Europe and America and the accumulation of finished oil inventories, the latest monthly oil market report released by the International Energy Agency predicts that the global average daily oil demand will shrink by about 1.1 million barrels year-on-year in 2026. In 2027, the global crude oil market may experience an excess of around 5 million barrels per day.

 

In the medium term, as exports from the Gulf region gradually recover, OPEC+production continues to rebound, and global demand recovery is weak, the pressure of oversupply will gradually emerge. In the future, the focus of oil prices will depend more on supply and demand fundamentals.

 

Norwegian energy company Lustad recently released a report stating that although geopolitical risks may still temporarily push up oil prices, it is difficult to change the overall trend of loose supply in the medium term. Goldman Sachs pointed out that the continuous release of "OPEC+" production capacity coupled with weak demand growth will limit the room for oil price increases, and the geopolitical risk premium will further dissipate.