What is going on with oil?

It’s been a good month for the oil price. Brent crude has risen by 5% in the past month. This means that oil has outperformed European stocks, the FTSE 100 is higher by 3.7% in that time, the Eurostoxx 50 index by 2%, and the Dax index has stalled. This move higher was unexpected, especially since Opec+ are boosting supply. So, why is the oil price rising?

Below, we list the main drivers of the oil price, and where it could go in the future.

• Although Opec + has agreed to production increases, this has not had a material impact on the global oil supply for now. Total Opec oil supply was stable in May. Opec+ pumped 2.754mn barrels of oil a day last month, up a touch from the 2.734mn barrels in April. Also, production remains at low levels, especially when compared to 2023 levels, as you can see in chart 1.
•  The oil price also reflects optimism that the US economy can avoid a recession if Trump’s trade team can reach trade agreements with its key trading partners before the end of the reciprocal tariff reprieve period next month.
• A stronger than expected labour market report in the US for May also boosted growth hopes, which helped the Brent crude price to break above resistance at $65 per barrel.
• Reports suggest that refiners have been snapping up oil cargoes in the US and North Sea to turn into gasoline and jet fuel to meet demand in the summer months, so seasonality could boost the oil price in the near term.
• Although global oil inventories are rising, they remain at the bottom of the 5-year range.

The question now is, once the summer is over, can the oil price remain supported in the face of oversupply?

• US oil production soared to a record high in March and is likely to remain at a high level just as Opec also ramps up production.
• This could exacerbate supply issues once the peak in summer demand has passed.
• The International Energy Agency (IEA) revised down its forecast for global oil demand for 2025 and 2026, although Q1 oil consumption remained robust, and was close to its highest ever levels, according to the IEA.
• Stockpiles are starting to build, although they remain close to the lowest levels for 5 years.
• Opec spare capacity was 5.17mn barrels in March, this could grow later this year, once the summer has passed and Saudi potentially floods the global market with more oil.
• The brent crude oil long term futures curve is currently in backwardation; however, it flips into contango in 2026. This suggests that the market is bearish in the medium term, before expecting prices to rise in future.

Overall, there are many reasons to be bearish about the oil price, but demand is holding up well, and Opec supply increases have not upset the balance in the oil market, for now. The technical signals are also supportive of the oil price. Brent crude oil has risen above its 50-day sma, and the next key resistance levels include $69 per barrel, the 100-day sma, and then $72.04, the 200-day sma.

While $70 per barrel for Brent could be a stretch too far, for now, momentum is to the upside and the technical signals do not suggest that Brent crude oil is overbought.

Chart 1: Opec + estimated crude production

Source: XTB and Bloomberg