Oil prices rebound from 4-yr low; banks cut annual forecasts

Investing.com-- Oil prices rose sharply Tuesday, rebounding on bargain hunting from recent four-year lows due to persistent concerns over slowing demand and increasing global production. 

At 08:35 ET (12:35 GMT), Brent oil futures for July rose 2.4% to $61.67 a barrel, and West Texas Intermediate crude futures rose 2.6% to $58.59 a barrel. 

The crude market received a boost Tuesday after U.S. President Donald Trump said that any country buying oil or petrochemicals from Iran will be subject to secondary sanctions immediately.

Oil still near 4-year lows  

However, despite Tuesday’s rebound, the market remains on edge after both benchmarks had settled at their lowest since February 2021 on Monday, driven by an OPEC+ decision over the weekend to further speed up oil production hikes for a second consecutive month, as well as demand disruptions caused by a U.S.-China trade war. 

While both Washington and Beijing had signaled some openness to trade talks, no dialogue appeared to be taking place. 

The trade war has been a major weight on oil prices, as markets feared that both the U.S. and China will face increased economic disruptions, hurting their appetite for oil.

A swathe of weak economic readings from the two countries, released over the past week, added to this notion.

Private purchasing managers index data released on Tuesday showed China’s services sector grew at a slower than expected pace in April. This followed weak manufacturing PMIs from last week, as well as gross domestic product data showing an unexpected contraction in the U.S. economy. 

Adding to oil’s woes, the Organization of Petroleum Exporting Countries and allies, known as OPEC+, over the weekend outlined much higher production hikes than initially expected. 

De-facto leader Saudi Arabia is set to lead the cartel into unwinding over two years of production cuts, with several OPEC+ members looking to increase sales volumes to offset weaker oil prices. 

Banks cut crude forecasts  

The recent sharp fall in crude prices has prompted a number of banks to cut their annual forecasts.

Barclays (LON:BARC) lowered its Brent crude forecast on Monday by $4 to $70 a barrel for 2025 and set its 2026 estimate at $62 a barrel, citing "a rocky road ahead for fundamentals" amid escalating trade tensions and OPEC+’s pivot in its production strategy.

Goldman Sachs also lowered its oil price forecast on Monday by $2-3 per barrel, as they now expect another 400,000 barrels per day production increase by OPEC+ in July. 

US shale production has peaked - Diamondback (NASDAQ:FANG) Energy  

U.S. shale production has likely peaked, major Texan oil and gas producer Diamondback Energy warned on Monday, as a recent decline in crude prices made increased production unprofitable. 

Diamondback, which is the largest independent oil producer in the Permian Basin, warned that the U.S. oil industry was facing a tipping point from low oil prices, and that lower prices are expected to slow U.S. oil production in the coming months. 

“U.S. onshore oil production has peaked and will begin to decline this quarter,” Diamondback said in a letter to shareholders, while also slashing its production and capital expenditure outlook for 2025.

U.S. oil production soared to record highs above 13 million barrels per day in 2024. 

Diamondback’s warning comes in contrast to repeated calls from President Donald Trump for higher U.S. energy production. 

(Ambar Warrick contributed to this article.)