Why oil prices could be on edge this summer

As summer kicks off, oil markets are bracing for a season of sharp moves and mixed signals. As per reports, supply headlines are turning heads - Chevron’s exit from Venezuela, Canadian wildfires, and OPEC+ doing the bare minimum. But demand? Still half-asleep, even with the summer driving season in sight.

Geopolitics is adding fuel to the fire: US-Iran nuclear talks, shifting trade tensions, and sanctions chatter are all keeping traders on edge.

This isn’t a market with a clear direction. It’s one that could swing hard, fast - and often. Buckle up.

Oil supply disruptions 

Let’s start with the drama out of Venezuela. Chevron has been told it can no longer export crude from the country - a move that immediately trims supply to the US, where refiners now have to go shopping elsewhere. Most likely? The Middle East. That’s not just a shift in barrels, it’s a shift in geopolitical risk.

At the same time, Canadian wildfires are threatening oil sands production, and it wouldn’t take much for that to escalate into a meaningful shortfall - especially if demand picks up (more on that in a minute).

And then there’s OPEC+. The group met and did nothing - no production cuts, no hikes, just a vague promise of future decisions. Another meeting is scheduled for Saturday 31 May, where a smaller group might agree to a modest increase for July. But with compliance issues already dogging the alliance, it’s hard to tell whether that would actually mean more barrels or just more noise.

Oil Demand isn’t exactly charging ahead

Now for the other half of the picture: demand.

This time of year usually sees a surge in fuel consumption, especially in the US, where road trips and holiday travel bump up gasoline use. But so far, it’s been more of a crawl than a sprint. Inventories are still relatively high, and early indicators suggest the summer driving season might be more subdued than hoped.

China, which many were counting on to power global demand, isn’t pulling its weight either. Its post-COVID rebound has been lukewarm, and industrial activity remains patchy. Not exactly the growth story oil bulls were banking on.

In short, the demand side isn’t dead, but it’s definitely not doing much to justify $90 oil.

GeoPolitics and oil 

When actual supply and demand fundamentals get this blurry, oil tends to take its cues from politics. And there’s no shortage of that.

The US and Iran are back at the table, sort of, trying to revive the nuclear deal. If anything gets signed, which is a big if, it could mean more Iranian oil back on the market, fast. That’s a wildcard traders can’t ignore.

Meanwhile, the EU and US seem to be warming to each other again, with Brussels quietly laying the groundwork for deeper trade ties. If that translates into improved economic activity, it might give demand a bit of a kick.

Let’s not forget the ever-present backdrop of Russian sanctions. Russia’s oil exports have proven surprisingly resilient over time despite headline-making global challenges. 

Any new measures or enforcement surprises could spark another supply jolt.

So, what does this all mean for the oil market?

In simple terms: don’t expect a smooth ride.

Oil prices could surge due to a supply disruption, a surprise from OPEC+, or a flash of geopolitical tension. Equally, they could drop sharply if Iranian oil returns, demand stays soft, or inventory builds up.

This isn’t a market where the fundamentals are clearly bullish or bearish. It’s a market that’s emotional, headline-driven, and hypersensitive.

And that, more than anything, is why this summer could be one of the most unpredictable we’ve seen in a while.

Oil technical insights

At the time of writing, we are seeing a significant surge in oil prices within a sell zone - hinting at a potential drawdown. However, the volume bars paint a picture of declining sell pressure, setting the stage for a potential price uptick. Should prices see a further uptick, we could see prices held at the $64.00 resistance wall. 

A major uptick could see prices find a ceiling at the $71.00 price level. In contrast, if we see a slump within the sell zone, prices could find support floors at the $60.15 and $57.30 support levels.

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