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- The first half of the year saw significant oil price volatility influenced by U.S. trade policies, OPEC+ production decisions, and geopolitical tensions.
- Oil prices initially slumped due to new U.S. tariffs and increased OPEC+ output, leading traders to amass short positions.
- Prices later spiked in June due to Middle East conflict fears, but this gain was short-lived following a U.S.-brokered ceasefire, causing a dramatic unwinding of bullish bets.
The oil market didn’t disappoint rollercoaster-ride fans in the first half of the year with wild price swings and sudden dips and price hikes.
U.S. trade policies, OPEC+ production policies, and the on-and-off war premium have all influenced market movements and traders’ behavior and strategies at some point over the past six months.
Oil Price Slump
Brent oil prices traded in a fairly narrow range in the first quarter of the year, in the low to mid $70s per barrel. Hedge funds and other portfolio managers expected a recovery in China’s industrial activity and oil consumption amid continued OPEC+ production cuts. Traders bet on stronger global oil demand amid restricted supply, while the Fed signaled inflation is tamed and additional interest rate cuts would follow soon.
However, the price of oil collapsed at the start of the second quarter. U.S. President Donald Trump announced sweeping tariffs on all countries, threatened a trade war with Canada, America’s top trading partner, and intensified trade pressures on China.
The so-called ‘retaliatory’ tariffs on dozens of countries—now suspended—plunged the equity and oil markets into chaos.
Speculators began to fear recessions, including in the United States. Investment banks elevated the risk of a U.S. recession to a base-case scenario. Traders bet on falling oil prices, amassing short positions.
To compound the price slump, the OPEC+ group began in April what analysts believe is a strategy to regain market share and punish U.S. shale. The alliance led by Saudi Arabia has been consistently raising collective output by 411,000 barrels per day (bpd) each month, nearly triple the volume originally scheduled.
OPEC+ continues to cite “current healthy oil market fundamentals” to justify its production hikes. In reality, the group has been adding lower volumes than the baseline figure of 411,000 bpd, as some producers appear to now sincerely work to compensate for previous overproduction. Such is the case of Iraq, OPEC’s second-biggest producer after Saudi Arabia.
But non-OPEC Kazakhstan has been openly defying the group’s targets as it continues to raise production from projects involving international majors such as Chevron (NYSE:CVX).
Kazakhstan’s Energy Minister Yerlan Akkenzhenov confirmed in May that “the republic has no right to enforce production cuts” on foreign operators.
Despite Kazakhstan’s production growth, the OPEC+ producers are adding fewer barrels to the market than the headline figure of 411,000 bpd. Compliance and compensation levels have been and will be key for traders and investors to guesstimate how much additional crude OPEC+ is really adding each month.
For now, it looks like OPEC+ is going after market share and depressing prices for the U.S. shale producers.
In the latest Dallas Fed Energy Survey out this week, 61% of executives expect their firms’ oil production would decrease slightly from June 2025 to June 2026 if the WTI price remained at $60 per barrel. At WTI price at $50 per barrel, 46% of executives expect their firms’ oil production would decrease significantly from June 2025 to June 2026.