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Energy Markets: Oil

Background Context:
Since beginning 2020, global oil markets have been navigating a volatile environment shaped by geopolitical tensions, supply disruptions, and shifting demand expectations in the wake of the post-pandemic recovery. The balance between OPEC+ production policy, Western sanctions on Russia, and uncertain global economic growth trajectories has made oil pricing particularly sensitive to political and macroeconomic developments.

Current Dynamics:
The recent rebound in oil prices has been tempered by discussions surrounding a potential nuclear agreement between the United States and Iran. Such a deal could ease sanctions on Tehran, allowing it to increase both its production and exports. Estimates suggest an additional 400,000 barrels per day (bpd) could return to the market, with some analysts projecting figures as high as 800,000 bpd, but the hard reality is that Iran’s infrastructure is outdated and sustainable capacity potential will be limited.

This prospective supply increase comes as OPEC+ continues to raise output levels, sparking concerns about a possible oversupply in the global market. Simultaneously, the International Energy Agency (IEA) has warned of a potential economic slowdown, which could cap demand growth in the coming quarters.

From a supply perspective, the IEA anticipates a 1.6 million bpd increase in 2025, largely driven by Saudi Arabia, even as U.S. shale oil production is expected to decline due to persistently low prices. This combination of rising output and potentially subdued demand raises the prospect of sustained downward pressure on oil prices.

Market Reaction:
Amid these developments, both Brent and WTI prices have declined over the past trading sessions, although the weekly performance remains marginally positive at around +1.40%. The market appears caught between bullish supply-side optimism (from potential economic resilience and geopolitical risk premiums) and bearish concerns over oversupply and softening demand