Yesterday, OPEC+ decided to start reversing the 2.2 mn bbl/day cuts from April 2025. This is estimated to reduce the deficit by 0.9 mn bbl/day in the second half of this year and 1 mn bbl/day in 2026.
This announcement resulted in oil prices falling by 2% and its volatility index (OVX) rising by 28%. The prices have remained at $70-80/bbl since September 2024. That range now might have a reason to break on the downside as supply is about to increase.
If the prices do come down from here then the inflation worries that bothering investors and central banks might diffuse. This could provide further momentum for global rate cuts to continue.
In addition to a supply increase, any relief in Russian sanctions or peace between Ukraine and Russia will reduce the geopolitical premium on the prices. There is another factor that might trigger a downside in the form of a growth slowdown due to tariffs.
Given such factors putting pressure on the downside, it is likely that oil prices in the coming months can become a lead indicator of growth slowdown or even a recession that many are not factoring in right now.
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