Oil Market – A Fragile Sentiment

Recently, OPEC+ began rolling back its previous supply restrictions. Already in early May, Saudi Arabia increased its oil production—earlier than previously expected. According to some Saudi officials, the decision comes at a time when other OPEC countries deviating from their agreed production levels, which has spurred frustration. However, other experts see a diplomatic motive behind the increase—namely, a lower oil price ahead of last week’s U.S. visit, intended to smoothen the U.S.–Saudi discussion on defense and technology. While Saudi Arabia has denied this claim, the production increase still plays into the hands of the U.S. by helping to counter the inflationary effect of its tariffs. By using oil as a diplomatic currency, Saudi Arabia positions itself as a key player not only in energy markets but also in global geopolitics. Last week’s announcement highlights a strengthened relationship between the two, suggesting that oil prices are no longer dictated solely by supply and demand, but also by what is said in the White House.

Ongoing U.S.–China trade tensions have increased demand uncertainty for oil, negatively affecting its price. The International Energy Agency (IEA) projects a slowdown in demand growth among OECD countries in both 2025 and 2026, while demand in non-OECD countries continues to rise. Moreover, S&P Global recently cut its forecast for annual demand growth, highlighting how tariff concerns and slowing industrial activity in Asia are undercutting expectations. Despite recent trade negotiations between Washington, London, and Beijing easing sentiment somewhat, uncertainty still remains and will likely cap oil’s upside in the near term.

Even if there have been some breakthroughs in trade tensions that slightly improve demand expectations, risks still tilt to the downside. If U.S.–China trade negotiations collapse or Europe’s economic slowdown deepens, oil prices could face renewed pressure. While trade tensions between China and the U.S. may have eased temporarily, downside risks persist. Hence, the market currently finds itself in an uncertain middle ground, where sentiment remains fragile. As a result, volatility is likely to define the market in the near term, creating opportunities for both long and short positions.