Samer Hasn
Crude oil experienced a sharp decline, dropping by more than 5% at the peak of the sell-off, pushing prices to their lowest levels in over four years. West Texas Intermediate (WTI) crude fell to $55 per barrel before paring some of its losses and attempting to reclaim the $57 mark.
The downward pressure on oil prices followed the announcement by the Organization of the Petroleum Exporting Countries (OPEC) that it would raise oil production by 441,000 barrels per day in June. This decision comes amid heightened uncertainty surrounding both the U.S. and global economic outlooks, particularly given the lack of clarity over the trajectory of the ongoing trade war.
Goldman Sachs anticipates that OPEC will further increase production in July by an additional 410,000 barrels per day. Meanwhile, U.S. crude output is expected to remain near 13 million barrels per day through at least 2026, according to the Energy Information Administration. Despite former President Donald Trump’s efforts to ease restrictions on fossil fuel production, current oil prices remain significantly below the breakeven point for many producers—discouraging further investment or output increases, according to the Wall Street Journal.
On the demand side, uncertainty continues to cloud markets, fueled by persistent volatility in trade relations. Even after Trump suspended tariffs on all countries except China and initiated discussions aimed at de-escalating trade tensions, he has maintained his position on imposing at least some tariffs. Meanwhile, negotiations between the U.S. and China have shown little substantive progress, and China is still considering Trump’s offer to reduce tariffs to 145%.
Geopolitically, developments over the weekend could return the region to the forefront of global energy headlines. For the first time, Yemen’s Houthi rebels reportedly managed to strike the vicinity of Israel’s Ben Gurion Airport with a missile that penetrated multiple layers of advanced air defense systems. Israeli officials responded by indicating that Iran, the Houthis’ primary backer, should be the target of retaliation.
This escalation coincides with stalled U.S.-Iran nuclear negotiations—a scenario favored by Israeli Prime Minister Benjamin Netanyahu and his far-right coalition, who advocate for a military strike on Iran that could potentially draw the United States into a protracted regional conflict. The unprecedented nature of this missile attack may provide Netanyahu with additional impetus to push for a military solution, thereby undermining diplomatic efforts with Washington. Any further escalation could threaten oil infrastructure across the region and disrupt global shipping routes on a broader scale. These concerns may explain the market’s attempt to recover from today’s sharp losses.
On the other hand, the missile’s ability to breach both Israeli and U.S. defense systems extending from the Red Sea serves as a stark warning of the vulnerability of these systems in the event of a sustained barrage. Should decision-makers factor in this reality, they may pursue de-escalation or opt for a limited response—similar to the tit-for-tat strikes exchanged by Iran and Israel late last year.
Hasn is Senior Market Analyst at XS.com
