Why oil prices may face an uphill battle despite market support

Oil prices were slightly lower on Thursday after sharp losses in the previous session due to prospects of higher supply and a slowing US economy. 

“Crude just can’t get an upside break,” said David Morrison, senior market analyst at Trade Nation. 

Crude oil’s daily MACD indicated a moderately oversold condition.

Morrison added:

But as seen repeatedly, ‘moderately oversold’ in the oil market will only get the bulls so far, as eventually any bounce soon runs out of puff, generally after a rally of no more than $5 or so.

Oil prices in April fell to their lowest levels in four years. The price of West Texas Intermediate crude oil on the New York Mercantile Exchange slipped to $55 a barrel, its lowest levels since 2021. 

Brent crude did not fare any better, with the benchmark falling more than 15% in April. According to analysts at ING Group, crude oil prices experienced their biggest monthly drop in April. 

At the time of writing, the price of WTI crude on NYMEX was at $58.13 a barrel, down 0.1%. Brent crude on the Intercontinental Exchange also fell 0.1% to $61.02 a barrel. 

OPEC to raise output

“Lingering tariff risks and expectations of OPEC+ loosening output curbs continue to pressure oil prices,” ING analysts said in a report. 

According to Reuters, Saudi Arabia has informed allies and industry experts of its unwillingness to support the oil market through supply reductions.

The country reportedly believes it can withstand an extended period of low oil prices.

OPEC+ sources indicate that several members will propose increasing output at an accelerated pace for the second month in a row during their June meeting. 

Eight OPEC+ nations are scheduled to convene on May 5 to determine their June production strategy.

Forward curve hints at falling prices

The near-term oil forward curves remain in backwardation, suggesting that an immediate oversupply is unlikely, according to Commerzbank AG’s commodity analyst Carsten Fritsch. 

However, the backwardation has narrowed.

The forward curve shows a decline until the close of 2025, followed by an upward trend.

“As a result, the price difference between the nearest contract and the contract maturing in seven-months is now somewhat larger than the difference between the nearest contract and the contract maturing in one year,” Fritsch said. 

Anticipated decreases in oil prices over the next few months are indicated by the forward curves.

“The contango structure starting from early 2026 may indicate that the oversupply will peak at the turn of the year, as the intended production increase of OPEC+ should be nearly completed by then, while demand could recover if the tariff conflict is solved by then,” Fritsch added. 

“There has never been sufficient upside momentum for oil to break out of its downtrend which has been building ever since the highs hit soon after Russia’s invasion of Ukraine,” Morrison said. 

He added:

The big question is how low prices need to go before producers start to cut back.

Demand 

The US economy, the largest oil consumer globally, experienced its first contraction in three years during the first quarter of 2025. 

This downturn was largely due to a surge in imports as businesses sought to bypass anticipated tariff increases, highlighting the destabilizing impact of President Donald Trump’s frequently unpredictable trade policies.

However, demand seems to be stable for Middle East crude grades. 

“Despite the recent weakness in the oil market, demand for Middle East crude appears to remain stable, with the market expecting Saudi Arabia to raise the official selling price by around US$0.3/bbl for Asian buyers for June deliveries,” ING analysts said. 

This would be the first increase in three months.

At the same time, competing supply from Iran has decreased due to stricter US sanctions. 

“The only moderate price increase is probably due to the significant expansion of oil supply,” Commerzbank’s Fritsch said. 

Saudi Arabia has significantly lowered the official selling price of its Arab Light crude for Asian markets for May shipments, marking the largest reduction (US$2.30 per barrel) since 2022.

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