Oil Steadies Near $65 Amid Easing Market Volatility

Oil markets have settled into an uncharacteristically narrow trading band, with Brent crude maintaining a tight hold near the $65 per barrel mark for over three weeks. Investors appear cautiously optimistic as renewed U.S.-China trade dialogue and summer-driven demand help offset looming concerns about a supply glut in the latter part of the year. Despite Friday’s slight dip, both Brent and West Texas Intermediate (WTI) crude are poised to log their first weekly gains in three weeks, indicating a modest rebound in market sentiment.

Narrow Price Range Reflects Temporary Market Equilibrium

Brent crude prices dipped 0.4% to $65.06 per barrel during early European trading on Friday, while U.S. WTI crude futures slid 0.6% to $63.01. Despite the decline, Brent is up 1.8% for the week and WTI has climbed 3.7%, reflecting cautious investor optimism. Since mid-May, oil prices have traded within a $4 range, and a key volatility measure for U.S. crude futures has dropped to its lowest level since April.

This price behavior suggests that the market has entered a temporary state of equilibrium, where rising summer demand and geopolitical signals are being counterbalanced by supply-side threats. The resumption of trade talks between U.S. President Donald Trump and Chinese President Xi Jinping, along with Canada’s ongoing negotiations with Washington, has supported this stabilization.

Highlights:

• Brent crude holds close to $65 for over three weeks, reflecting market equilibrium.

• Price volatility hits lowest level since early April.

• U.S.-China and U.S.-Canada trade talks improve demand outlook.

U.S.-China Trade Truce Calms Demand-Side Fears

The recent diplomatic re-engagement between the U.S. and China, the world’s two largest energy consumers, has offered a timely boost to oil markets. President Trump characterized his call with Xi Jinping as yielding a “very positive conclusion,” according to Chinese state media. The discussions have renewed hopes that easing tariffs will restore global trade flows, supporting industrial activity and energy demand.

The importance of the trade narrative remains central, especially as prior U.S. tariffs and Chinese retaliatory measures had weighed heavily on oil consumption forecasts. With both countries now signaling cooperation, traders have momentarily set aside fears of prolonged demand erosion.

Highlights:

• U.S. and China resume trade talks, raising energy demand hopes.

• Trump describes conversation with Xi as “very positive.”

• China confirms Washington initiated renewed dialogue.

Supply Outlook: OPEC+ Adds Barrels as Saudi Arabia Cuts Prices

While demand sentiment has improved, the supply-side equation is becoming increasingly complicated. The OPEC+ alliance, led by Saudi Arabia and Russia, has accelerated its supply additions. The group will ramp up output by 411,000 barrels per day in July, signaling a faster-than-expected return of barrels to the market. Saudi Arabia, in an attempt to balance higher production with regional competition, has cut its July selling prices for Asian buyers to near two-month lows, though the reductions were smaller than market expectations.

Riyadh’s strategy appears two-pronged: to assert market discipline within OPEC+ while regaining market share in Asia. HSBC analysts project that oil demand will peak in July and August, largely absorbing this increased output. However, beyond the summer peak, fundamentals are expected to deteriorate, pushing the market toward a potential surplus in Q4FY25.

Highlights:

• OPEC+ will add 411,000 barrels per day in July.

• Saudi Arabia cuts July prices for Asia to boost competitiveness.

• Market balance expected in summer; surplus likely by Q4FY25.

Geopolitical Risks Add to Market Uncertainty

In addition to trade and production dynamics, geopolitical risks continue to hover over the oil market. BMI, a Fitch Group company, warned on Friday that heightened risks from U.S. sanctions on Venezuela and the threat of Israeli military action on Iranian infrastructure could add upward pressure to prices. These risks are not yet priced in fully, given the current focus on trade negotiations and supply-demand projections.

However, the market is simultaneously grappling with the bearish weight of elevated global output from both OPEC and non-OPEC producers. This growing surplus may eventually overshadow geopolitical concerns unless major disruptions materialize.

Highlights:

• U.S. sanctions on Venezuela and Israel-Iran tensions could lift prices.

• Non-OPEC producers contributing to rising global supply.

• Market remains vulnerable to sudden geopolitical shifts.

Analysts Warn of Downside Risks Post-Summer

Looking beyond the current trading range, many analysts expect market fundamentals to weaken. HSBC, in a recent client note, forecasted that the oil market will appear balanced in Q2 and Q3FY25 due to seasonal demand spikes. However, they cautioned that accelerated OPEC+ output increases will likely push the market into a deeper surplus by Q4FY25 than previously anticipated.

The cautious outlook is compounded by softening demand signals and underwhelming global economic data. If trade optimism falters or supply growth outpaces expectations, oil prices could face significant downward pressure in the coming quarters.

Highlights:

• Market equilibrium may not last beyond peak summer months.

• Q4FY25 could see larger-than-expected oil surplus.

• Softening demand poses downside risks to oil prices.