Crude oil price drops rattled global markets on Thursday, owing to increased fears of a global supply excess and growing optimism about a potential US-Iran nuclear deal that would bring Iranian oil back into international markets. Brent crude sank $1.99, or 3%, to $64.10 per barrel, while US West Texas Intermediate (WTI) fell $2.05, or 3.3%, to $61.10, its lowest in more than four months.
This crude oil price drop marked the second consecutive day of losses, wiping off recent gains attributed to lessening US-China trade tensions. The unexpected crude oil price drop followed a surge in U.S. crude inventories, thus fueling the market’s pessimistic attitude.
US Crude Inventory Build Sparks Oversupply Concerns
Reuters reported that Crude oil markets experienced sustained downward pressure following an unexpected increase in US crude stocks, raising fears about a developing supply-demand mismatch. Energy Information Administration (EIA) reported that domestic stockpiles increased by 3.5 million barrels in the week ending May 9, bringing total reserves to 441.8 million barrels. This greatly exceeded expert expectations, which predicted a decrease of approximately 1.1 million barrels.
The market reacted quickly, with traders interpreting the report as a sign that oil demand is falling or that supply is outpacing consumption. The issue was made worse by a reduction in US refinery utilisation rates, which reinforced the idea of weakening downstream demand.
Tony Sycamore of IG commented on the volatility, noting that recent price movements suggest a market that remains confined within a broad $55 to $65 per barrel range. He said that,
My forecast is we continue to see a range-bound market for the next month or so; however, barring an unexpected geopolitical shock, when the range does give way, it will be to the downside, towards $50 per barrel.
Adding to the pessimistic sentiment, the American Petroleum Institute (API) provided parallel data indicating an even greater increase of 4.3 million barrels in oil stocks, raising concerns about chronic oversupply.
On a global level, the Organisation of Petroleum Exporting Countries and its allies (OPEC+) continue to add to the pressure. While the group recently decreased its prediction for non-OPEC+ oil supply growth from 900,000 to 800,000 barrels per day by 2025, their continued production increases are contributing to the global surplus.
Iran Nuclear Deal May Accelerate Crude Oil Price Drop
Oil prices fell further this week as hints of progress in US-Iran nuclear talks increased the likelihood of Iranian crude returning to global markets. Several sources report that Tehran has shown a conditional willingness to accept a framework presented by the United States in exchange for the easing of economic sanctions.
This proposed deal could add more than 1 million barrels per day of Iranian oil to an already oversupplied market, raising concerns about a worldwide oversupply. Iran presently exports approximately 1.6 million bpd, with a pre-sanctions capability of around 3.8 million bpd.
Despite new US sanctions targeting Iran’s missile and oil networks, President Trump expressed hope about reaching an agreement. Saudi Arabia has backed the discussions and expressed hope for a successful resolution. With more negotiations anticipated, investors are keeping a close eye out for developments that might have a substantial impact on global oil supply and market stability.
Conclusion
Oil prices have fallen to multi-month lows amid heightened volatility, owing to increased U.S. crude supplies and the anticipated return of Iranian oil. With demand recovery weak and OPEC+ yet to announce production cuts, the market outlook for Q2 2025 remains negative. Analysts predict such pressure will persist unless diplomatic or supply-side shifts occur. Investors are eagerly monitoring US-Iran talks and inventory data for signs of stability.
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