Oil prices face litmus test as US-Iran nuclear talks, OPEC meeting to shape market next week

Oil prices have stabilised at pre-Middle East conflict levels following the start of the ceasefire. 

Expanding the oil supply further, however, could prove to be a critical test.

“The weekly US inventory report had prevented a further price slide because the US oil market - at least for the time being - is still rather tight,” Barbara Lambrecht, commodity analyst at Commerzbank AG, said. 

Two pivotal events are scheduled for next week, poised to serve as a crucial test for the precarious equilibrium of the oil market.

US-Iran nuclear negotiations and tariffs 

Firstly, the nuclear negotiations between the US and Iran are likely to resume next week. 

The future direction of the US remains uncertain.

While US President Donald Trump has suggested that Iran requires its oil revenues for national rebuilding efforts, the overall US strategy is not yet clear.

He conceded to China's request to buy oil from Iran, even as he simultaneously aimed to maintain the "maximum pressure" strategy on Tehran.

Analysts at ING Group, said in a note:

A trade agreement between the US and China, drafted last month in Geneva, has been finalized, according to US Secretary of Commerce Howard Lutnick.

Lutnick anticipates trade agreements will soon be finalized with 10 key trading partners.

“This is constructive for the market, particularly ahead of the reciprocal tariff deadline of 9 July,” ING analysts said. 

OPEC+ meeting

The second pivotal event next week is the meeting of the eight members of the Organization of the Petroleum Exporting Countries and allies, which have voluntarily cut oil production.

Commerzbank’s Lambrecht said:

Kazakhstan's oil production in June is expected to have once again considerably surpassed its agreed quota.

This lack of production discipline from certain nations is perceived as a primary factor behind Saudi Arabia's reluctance, as a major producer, to bear the burden of production cuts unilaterally.

Kazakhstan’s oil and condensate production is projected to increase by approximately 6% in June, reaching 2.14 million barrels per day, according to the Kazakh Energy Ministry.

Kazakhstan is set to produce considerably more than the agreed-upon amount for an additional month.

This is despite condensates being exempt from the production limits. 

“However, as a further increase is probably the consensus on the market, this is likely to weigh on oil prices slightly at best,” Lambrecht added. 

ING analysts also echoed the same tone as they forecast that OPEC+ would continue to aggressively unwind output cuts and raise production by 411,000 barrels per day in August. 

They said:

OPEC production figures

June will see the release of the first survey-based estimates of OPEC production.

These estimates will reveal the extent to which OPEC+ has increased its output.

Since May, the eight members of OPEC+, including kingpin Saudi Arabia and Russia, have raised crude oil output by 411,000 barrels per day.

In its last meeting, the cartel had agreed to increase production by 411,000 barrels a day in July as well. 

Incidentally, OPEC+ production in May was lower than in April. This was due to production cuts elsewhere, which offset increases from Saudi Arabia and the United Arab Emirates, according to the International Energy Agency.

“In addition to the news on the supply side, sentiment indicators will put the focus on trends on the demand side: if sentiment in China brightens somewhat as hoped, this should support oil prices, at least in the short term,” Lambrecht said.