Why are crude oil prices rising? Check reasons, outlook & trading strategy

Oil prices: A meaningful upside in oil prices seems limited as the recent rally has been driven more by geopolitical risks than by fundamental demand

Short term supply fear drives oil prices higher

 

Oil prices began June on a strong footing, rising by 5 per cent in just two trading sessions. This surge has largely overshadowed Opec+'s recent decision to increase output by 433,000 barrels per day (bpd) in July. Brent crude, the global benchmark, is holding above $65, while US crude (WTI) has risen above $63. The rally is primarily driven by short-term supply concerns rather than a significant increase in demand.

 

Wht are oil prices rising?

 

One of the key factors fueling this rally is the outbreak of wildfires in Alberta, Canada's primary oil-producing region, which accounts for 80 per cent of the country's output. The fires have forced the suspension of approximately 350,000 bpd, or 7 per cent of Canada's daily production. A similar event in 2024 disrupted 400,000 bpd and contributed to a spike in global oil prices. In addition to the Canadian disruption, geopolitical tensions are adding to supply fears. Uncertainty surrounding a potential nuclear deal with Iran and the increasing vulnerability of Russian oil infrastructure to Ukrainian drone attacks have heightened concerns about global supply stability.

 

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Meanwhile, Opec+ announced on May 31, 2025, that it would raise crude oil output for the third consecutive month, despite internal disagreements led by Russia. Saudi Arabia is aggressively pursuing market share, which has exerted downward pressure on prices. The group plans to increase production by 411,000 bpd in July, having already restored 1.37 million bpd of the planned 2.2 million bpd by the end of 2026. As of May, the global oil market is in surplus by approximately 0.5 million bpd, a figure expected to exceed 1 million bpd by year-end. The next Opec+ meeting is scheduled for July 6, 2025, where the group will decide on August production levels. Opec+ has emphasised flexibility, indicating that production increases could be paused or reversed depending on market conditions.

 

In the United States, lower crude prices are beginning to impact energy producers. The latest Baker Hughes data shows that the US oil rig count fell by four to 461, marking the fifth consecutive weekly decline and a 6 per cent year-over-year drop. The Permian Basin, which accounts for 46 per cent of US crude oil production, has seen a 22 per cent decline in rig count by the end of May. Some fields in the region have breakeven costs as high as $96 per barrel. While production from the Gulf Coast remains stable at around 1.8 to 1.9 million bpd, contributing 22–25 per cent of total US output, overall US crude production has slipped slightly below its March peak of 13.45 million bpd.   

Oil demand outlook

 

On the demand side, signs of a slowdown are becoming evident. In the US, the volume of crude oil and petroleum products supplied fell to 19.95 million bpd in March, the lowest level since March 2024. In China, crude oil imports declined by 2 per cent in 2024—the first drop in two decades—and early 2025 data suggests continued weakness. Together, the US and China account for over 35 per cent of global crude oil demand, making these trends particularly significant.

 

Macroeconomic indicators are also weighing on the market. The OECD, recently, cut its global GDP growth forecast for 2025 to 2.9 per cent from 3.1 per cent. In China, the May Caixin Manufacturing PMI fell sharply to 48.3, marking the steepest contraction in more than two and a half years. In the US, the ISM Manufacturing Index dropped to 48.5, while imports hit a 16-year low and exports fell to a five-year low, possibly due to retaliatory tariffs. Additionally, rising US Treasury yields have pushed long-term mortgage rates close to 7 per centm putting pressure on the housing market.

 

Oil prices and trading strategy for crude

 

Looking ahead, the upside for crude prices appears limited. The recent rally has been driven more by geopolitical risks than by fundamental demand. With global supply already in surplus and economic indicators pointing to a slowdown, prices are unlikely to sustain higher levels. WTI faces key resistance between $65 and $67. While short-term prices may test the $65 mark again, the long-term outlook remains bearish and we expect WTI to average around $57-$58 by end of 2025 due to expected supply surpluses and weakening demand.

 

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Disclaimer: Mohammed Imran is a research analyst at Mirae Asset Sharekhan. Views expressed are his own.