Global oil prices have shown signs of stabilisation after three consecutive days of gains, driven by shifting market dynamics. The energy market, which had been reacting positively to signs of easing US-China trade tensions, is now re-evaluating the impact of geopolitical developments in the Middle East, especially concerning Iran and Saudi Arabia.

Oil Prices: A Snapshot

West Texas Intermediate (WTI) crude rose above $61 per barrel, building on its 1.5% rise in the previous session, while Brent crude hovered just below $65 per barrel. However, despite strong momentum, prices eased off intraday highs on Monday due to political signals from the US that hinted at potential progress in nuclear talks with Iran.

The oil market is reacting cautiously to statements made over the weekend by US President Donald Trump, who suggested a thaw in US-Iran relations. If restrictions on Iran’s crude exports are relaxed as a result, global oil supply may increase, putting downward pressure on prices.

Trump’s Middle East Visit Sparks Speculation

Trump is scheduled to begin his first overseas visit of his second term with a stop in Saudi Arabia on Tuesday. The trip is highly symbolic and strategically important, especially since Saudi Arabia plays a central role as OPEC’s de-facto leader.

Saudi Arabia has recently been advocating for OPEC to raise oil production as a form of punishment for non-compliant members who are not adhering to output agreements. This stance has led to a drop in oil prices over the past months and indicates a potential shift in OPEC policy going forward.

The upcoming OPEC meeting on June 1 is now under intense scrutiny. Analysts expect a further boost in output targets, particularly if oil-producing nations feel the need to stabilise prices or gain market share.

Impact of Trade War Truce on Oil Prices

Earlier this month, oil prices were significantly influenced by the US-China trade war. Since April, when Trump first announced sweeping tariffs, oil prices had fallen by more than 10%. These measures led to retaliatory tariffs by other countries, particularly China, creating an environment of economic uncertainty and reducing fuel demand expectations.

However, a 90-day truce agreed upon by the world’s top two crude consumers—the United States and China—provided some temporary relief to the oil markets. Despite the truce, concerns remain that global economic growth could still slow, thereby impacting energy demand in the medium term.

Iran's Role in the Global Oil Equation

The nuclear negotiations with Iran are another major factor influencing oil markets. If the US reaches a deal and relaxes sanctions, Iran could significantly increase its crude exports, further adding to a potential global oil glut.

Traders are now trying to assess the likelihood of a deal and how quickly Iranian oil could return to the market. Some experts believe that any easing of sanctions could happen in phases, meaning the impact on oil prices might be gradual rather than immediate.

OPEC’s Dilemma: To Cut or To Pump More?

OPEC and its allies face a challenging task. On one hand, they need to stabilise prices and maintain revenues for their member states. On the other hand, with US shale oil production remaining high and other non-OPEC producers entering the market, they risk losing market share if they maintain production cuts.

The expected decision to increase output during the June 1 OPEC meeting will likely be a strategic move to reclaim dominance in the global oil market. However, it also increases the risk of oversupply, which could send prices into a fresh downward spiral.

Market Outlook and Analyst Expectations

Analysts are divided in their forecasts. Some see oil remaining range-bound between $60-$65 per barrel due to balanced demand-supply factors, while others caution that increased output combined with weakened demand could drive prices below $60.

Energy analysts also point to inventory levels, refinery capacity utilisation, and global GDP growth as key metrics that will influence oil prices in the coming months.

Additionally, currency fluctuations, especially the strength of the US dollar, will play a role in determining crude oil affordability for importing nations.

Energy Stocks and Investor Sentiment

The uncertainty in the oil market has led to mixed reactions in energy stocks. While some companies have benefitted from higher prices earlier in the year, others are cautious due to policy shifts and macroeconomic volatility.

Investor sentiment remains fragile. Many are watching closely for clear signals from the OPEC meeting, any further announcements from Washington regarding Iran, and the outcome of Trump’s Middle East visit.

Conclusion: A Delicate Balancing Act

The global oil market currently stands at a crossroads. On one side, there is geopolitical optimism, with signs of improved relations between the US and China and possible diplomatic breakthroughs with Iran. On the other, the risk of oversupply looms large as OPEC prepares to potentially increase output and global demand shows signs of plateauing.

The coming weeks will be critical for traders, policymakers, and consumers alike. All eyes are now on Trump’s diplomatic efforts, OPEC’s policy direction, and macroeconomic indicators that will shape the future of crude oil prices globally.

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