Looking at oil and gold prices, it is hard to believe that just over a week ago there was an active conflict between Israel and Iran, with the real threat that one of the world's key shipping lanes for the transport of oil and liquefied natural gas — the Strait of Hormuz — would be blocked, something that ultimately did not happen.
While no peace agreement has been signed and the risk of a new escalation persists, the markets do not seem to believe that oil supplies will be affected. A disruption of such a vital energy logistics channel would benefit no one, including Iran, of course, which would lose an important source of revenue.
Has oil returned to a “safe zone”?
It depends on who you ask. According to FRED data, Saudi Arabia needs oil above $90 a barrel to balance its budget. The UAE's break-even price is much lower: about $50. Oman needs $57, and Qatar needs only $44.70. Clearly, not all producers play the same game, but the current price is acceptable for most.
On the supply side, the fundamentals look bearish. There is no shortage of oil. The International Energy Agency (IEA) forecasts global production to reach 104.9 million barrels per day in 2025 and 106 million in 2026. Demand, however, will lag behind: 103.76 million barrels per day in 2025 and 104.5 million in 2026.
The supply/demand ratio for oil could rise further if OPEC+ decides to release more barrels. After recently agreeing to boost production by 411,000 barrels per day, eight of the group's major members appear likely to approve another increase at the next meeting on July 6 — a move that could put downward pressure on prices.
Bottom line: Oil prices have settled at relatively reasonable levels.
As for what to expect next for oil prices, assuming there are no further supply-threatening flare-ups in the Middle East or OPEC+ leaves production quotes as tight as they are now, the future of oil will likely depend on the broader state of the global economy, and here, things are not good for the oil bulls either.
The fact is that recently, the OECD has revised down its global growth forecast: GDP is now expected to grow by only 2.9% in 2025 and 2026, down from previous estimates of 3.1% and 3.0%. This kind of macroeconomic slowdown is not conducive to a commodity rally, especially when no supply problems exist.
In short, most current factors do not point to a fall in oil prices, but rather to their stabilization at current levels, which is positive for central banks trying to fight inflation. The problem, however, is that the fragile cease-fire in the Middle East could unravel quickly, and the situation could deteriorate again overnight...