Weakened U.S. Dollar and Diminished Enthusiasm for Trade Agreement Driving Down Crude Oil Prices
In the ever-evolving landscape of the global oil market, several significant developments have emerged in recent times.
The resumption of oil exports from the semi-autonomous Kurdish region of Iraq is expected to add around 230,000 barrels per day (bpd) to Iraq's crude oil supply. This development, while potentially boosting Iraq's production levels, has had a relatively limited impact on global crude oil prices. The market has been influenced by a variety of factors, including EU sanctions on Russian oil, strong U.S. economic data, and concerns about increased supply from Kurdistan.
The Kurdistan Regional Government (KRG) currently produces about 280,000 bpd in 2025. Under a new deal with Iraq, production above this level will be handed over to Iraq’s federal oil marketing company (SOMO), potentially constraining the KRG's independent export capacity. Technical and political challenges still delay full export restart, and further uncertainty arises from Turkey's plan to end the current pipeline deal with the KRG by next year.
Meanwhile, the global oil market is facing a potential slowdown in demand in the second half of 2025, according to OPEC+ concerns. This, combined with the resumption of Kurdish exports and the accumulation of inventories at a rate of 1 million bpd, as reported by the International Energy Agency, could lead to a surplus by Q4-2025 equivalent to 1.5% of global crude consumption.
In the United States, economic indicators have shown mixed results. US Jun retail sales ex-auto fuel rose by 0.6% m/m, weaker than expected, while US crude oil production in the week ending July 18 fell by 0.8% w/w to 13.273 million bpd. US distillate inventories as of July 18 were -18.5% below the 5-year seasonal average, while gasoline inventories were +0.2% above the seasonal 5-year average.
Crude oil and gasoline prices have been affected by various factors. Prices moved lower due to a stronger dollar, but found some support due to the S&P 500 reaching a new record high. September WTI crude oil (CLU25) closed down -1.32%, and September RBOB gasoline (RBU25) closed down -0.58%.
OPEC+, in response to these market dynamics, is discussing a potential pause in further production increases from October. On July 1, OPEC+ agreed to raise its crude production by 548,000 bpd, effective from August 1. However, the organisation may reconsider this decision in light of the potential slowdown in global oil demand and the accumulation of inventories.
The number of active US oil rigs in the week ending July 22 decreased by 7 rigs, reaching a new 3.75-year low of 415 rigs. This decrease in rig count could potentially impact future production levels in the United States.
In summary, the global oil market is navigating a complex web of supply and demand dynamics, with the potential for a surplus in Q4-2025. The resumption of Kurdish exports, while significant for Iraq, has had a relatively limited impact on global crude oil prices due to broader market factors. The decisions of OPEC+ and the United States regarding production levels will play a crucial role in shaping the market's trajectory in the coming months.
Investors keen on the energy sector might find interest in the potential impact of OPEC+'s decision regarding future production increases on crude oil prices. Uncertainty surrounding the Kurdistan Regional Government's independent export capacity, influenced by political and technical challenges, further adds to market volatility in the finance industry.
