Crude oil prices dip to $66.21 as concerns over oversupply grow

Oil prices declined for a fifth consecutive session on Tuesday, as a preliminary agreement reached between Iraq and Kurdish regional governments to restart an oil pipeline heightened concerns about oversupply. Brent crude futures fell by 36 cents, or 0.54 percent, settling at $66.21 a barrel, while U.S. West Texas Intermediate crude decreased by 33 cents, or 0.53 percent, to $61.95 a barrel. Both contracts are now on a five-session losing streak, down by 4 percent.

Overall, the global oil market is preparing for increased supply and waning demand, hindered by the rapid rise of electric vehicles and economic challenges exacerbated by tariffs.

In its most recent monthly report, the International Energy Agency indicated that world oil supply is set to grow more swiftly this year, with a surplus potentially widening in 2026 as OPEC+ members boost output and supply from outside the group increases. Nonetheless, risks loom over the market as traders keep an eye on the European Union’s deliberation regarding stricter sanctions on Russian oil exports, in addition to any escalation of geopolitical tensions in the Middle East.

U.S. crude oil stockpiles were anticipated to have risen last week, while gasoline and distillate inventories likely experienced declines, as per a preliminary Reuters poll conducted on Monday. In another development, Saudi Arabia’s crude oil exports in July fell to their lowest level in four months, according to data released on Monday by the Joint Organizations Data Initiative (JODI). Iraq, the second-largest producer within the Organization of the Petroleum Exporting Countries, has increased oil exports under an OPEC+ agreement, according to state oil marketer SOMO.

Read more: Crude oil prices rise to $67.08 as EU moves to limit Russian energy revenues

IEA’s revised supply outlook

On the demand front, the global oil market faces headwinds from several directions. The International Energy Agency (IEA) recently revised its outlook, projecting world oil supply to rise more rapidly in 2025 and a surplus potentially widening further in 2026 due to the output increases by OPEC+ and supply growth outside the group. Despite a slight upward revision in demand growth forecast to about 740,000 barrels per day in 2025, this is tempered by structural changes like the accelerating adoption of electric vehicles and economic challenges globally.

Regionally, geopolitical risks remain a factor that occasionally support prices, but they have been insufficient to offset the oversupply pressures. The European Union is contemplating stricter sanctions on Russian oil exports, which adds some market tension. Meanwhile, the Middle East sees persistent geopolitical turmoil, including the Israel-Gaza conflict and broader regional uncertainties, but these have not resulted in significant supply disruptions recently.

Data on U.S. inventories also illustrate mixed market signals. Preliminary reports indicated that U.S. crude oil stocks were expected to rise last week, reinforcing oversupply concerns. However, gasoline and distillate inventories likely fell, demonstrating some end-user consumption resilience.

Saudi Arabia, the largest OPEC producer, saw its crude oil exports dip to their lowest level in four months in July, according to Joint Organizations Data Initiative (JODI), but overall production adjustments by Saudi Arabia and other Gulf producers continue to support supply growth within the OPEC+ framework.