MW Oil prices are climbing because a new battle for global market share is brewing

By Myra P. Saefong

OPEC+'s 'superhike' is having an unexpected effect

Oil prices marched to their highest levels in two weeks on Tuesday, gaining ground despite plans to increase the flow of crude oil to world markets next month.

A powerful group of oil producers known as the Organization of the Petroleum Exporting Countries and its allies, or OPEC+, agreed over the weekend to increase crude output by 548,000 barrels per day in August.

Yet instead of prices falling ahead of that increased supply, the move to unleash more barrels into the open market has sparked a new battle in the fight for global market share.

"Their surprise superhike...isn't just a number, it's a declaration - a shot across the bow," said Stephen Innes, managing partner at SPI Asset Management, in a note Tuesday. "OPEC+ has dropped the scalpel and picked up the trident," he said. It's "no longer delicately managing prices, but jabbing at market share with force."

OPEC+ has been gradually raising production to return 2.2 million barrels per day of voluntary production cuts from last year to the market. The August figure was larger than the 411,000 daily barrel increases seen in the months of May, June, and July.

By September, the group was expected to fully reverse its voluntary cuts, potentially a year earlier than expected. Innes characterized the sudden shift as "a rollback delivered with the urgency of a sidewinder strike," which refers to a unique baseball pitch that can have a deceptive release point.

"Behind the curtain, this is not just a pump fest - it's a punishment regime," Innes said.

No 'drill-baby-drill'-ing

After attacking Iran's nuclear sites in June, President Trump urged "everyone" to keep oil prices down, fearing that higher energy prices could unleash a backlash by consumers.

Trump campaigned on keeping energy costs low, while vowing to "drill, baby, drill" domestically. The White House also has been fighting against green-energy programs from the Biden administration, and has extended that battle to trade negotiations with the European Union, according to a report from The Wall Street Journal.

Adding to the recent oil-market drama has been a growing rift within OPEC+ about compliance with output quotas, as well as strength in summer demand during the driving season and ongoing concerns surrounding Iran, one of the world's largest oil producers.

Read: Here's the open secret as U.S. tightens sanctions on Iran's oil exports

OPEC+ oil producers adhering to output quotas are "getting the spoils," while the ones who over pumped above their quotas, such as Iraq and Russia, are now "relegated to the penalty box, with reduced slices of the next [production] hike," Innes said.

At the same time, the coalition of producers looks to be working to hobble U.S. shale production.

At $60 a barrel for West Texas Intermediate crude, U.S. oil production rigs keep turning. But at $50 a barrel, the "fields go quiet," said Innes. OPEC+ has been betting that a price war, "waged with barrels instead of rhetoric, can reclaim market share by forcing the marginal producer back to the sidelines."

In a monthly report released Tuesday, the Energy Information Administration said falling oil prices have contributed to a slowdown in drilling activity among U.S. producers.

The agency lowered its daily crude-oil production forecast to less than 13.3 million barrels by the fourth quarter of 2026, from an all-time high of just over 13.4 million in the second quarter of 2025.

The U.S. hasn't been able to increase production meaningfully in recent months, said Fawad Razaqzada, market analyst at City Index and FOREX.com, pointing to the latest data from Baker Hughes (BKR) showing U.S. active oil-rig counts falling to 425, the lowest since October 2021, from around 780 rigs in 2022's peak.

'This might be the perfect opportunity for the OPEC+ to raise output as much as possible, while the U.S. drilling is not "drill-baby-drill"-ing.'Fawad Razaqzada, City Index and FOREX.com

"It can be argued, therefore, that this might be the perfect opportunity for the OPEC+ to raise output as much as possible, while the U.S. drilling is not 'drill-baby-drill'-ing," said Razaqzada.

To be sure, last month's historic U.S. military strikes in Iran came after the American shale revolution allowed it to break its dependence on Middle Eastern oil. The U.S. became a net oil exporter in 2020.

Yet geopolitics continue to play a big role in the oil market.

"June's 12-day war between Israel and Iran lit a fuse under oil, sending Brent soaring more than 30% in three weeks, only to collapse like a soufflé under a Pentagon airstrike and a sudden cease-fire," Innes said. "Risk premium? In. Risk premium? Out. Repeat."

Other factors also matter in the global oil market, including how Trump's tariff fight may impact inflation and world economies.

Crude prices have found support as trade and inflation fears have eased since April, while the outlook for oil demand has improved, said Razaqzada.

There were worries that trade concerns would end up hurting the global economy and pulled own demand for oil, but those fears have "receded sharply," with the S&P 500 index SPX and Nasdaq Composite Index COMP surging from their April lows to recently hit record highs, he said.

Inflation hasn't picked up as was feared due to higher tariffs and as many central banks have been cutting rates, Razaqzada said, adding that the GOP also passed a big budget and tax bill into law. That "should boost economic output in the short-term all else being equal, even if it ultimately adds trillions to the national debt."

Meanwhile, U.S. benchmark crude WTI has been climbing lately, but has still lost 4.7% year to date.

The global benchmark Brent on Tuesday saw its September contract (BRN00) (BRNU25) tack on 0.8% to $70.15 a barrel on ICE Futures Europe, while U.S. benchmark West Texas Intermediate crude for August delivery (CL.1) (CLQ25) added 0.6% at $68.33 a barrel on the New York Mercantile Exchange. Both marked their highest settlements since June 23, according to Dow Jones Market Data.

-Myra P. Saefong

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 08, 2025 17:10 ET (21:10 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.