Page 26 - Policy & Economic Report - June 2025

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Oil Market

Crude oil price – Monthly Review

Global oil markets experienced significant turbulence following a sharp escalation in geopolitical tensions,
as Israel launched a series of air strikes on targets in Iran, prompting retaliatory action from Tehran.
Although the two nations have engaged in a prolonged shadow conflict for decades, the current escalation
marks the most intense phase to date, notably involving attacks on energy infrastructure for the first time.
Iranian oil flows remained unaffected; however, heightened concerns over potential regional
disruptions—particularly to oil transit through the strategically vital Strait of Hormuz—led to a surge in oil
prices, with Brent crude futures rising to a six-month high of $74 per barrel.

Iran currently produces around 4.8 mb/d of crude, condensates and NGLs, with total oil exports of about
2.6 mb/d. While the US administration has recently intensified sanctions on buyers of Iranian oil supplies,
Iran’s exports of crude and condensates have remained unchanged, averaging around 1.7 mb/d so far this
year, with most of it going to China. Iran is also a significant oil product exporter, with shipments of fuel
oil, LPG and naphtha averaging nearly 800 kb/d since January. Iran partially suspended production at the
world’s biggest natural gas field, South Pars, after an Israeli strike caused a fire in what would be the first
Israeli attack on Iran’s oil and gas sector. Iran has repeatedly threatened to close the key Strait of Hormuz
if attacked. Closure of the Strait, even for a limited period, would have a major impact on global oil and
gas markets. The Strait is the exit route from the Gulf for around 25% of the world's oil supply – including
from Saudi Arabia, the UAE, Kuwait, Qatar, Iraq and Iran – and most of the world’s spare production
capacity.

In the absence of a major disruption, oil markets in 2025 look well supplied. Meanwhile, global oil supply
in May was up by 1.9 mb/d from a year ago, led in part by the unwinding of voluntary OPEC+ production
cuts. For 2025 as a whole, world oil supply is projected to rise by 1.8 mb/d to 104.9 mb/d and by an
additional 1.1 mb/d in 2026. Non-OPEC+ producers are forecast to add 1.4 mb/d on average this year and
840 kb/d next year.

Crude spot prices declined in May, primarily driven by continued selloffs in the futures market. Spot prices
also came under pressure, mainly due to weaker European refiners’ demand, given refinery outages,
easing geopolitical concerns about oil supply, and signs of a well-supplied crude market, including
expectations of higher short-term supply from the US. Additional downward pressure came from higher
US petroleum product inventories in May, the slow clearing of some loading programmes in the Atlantic
Basin, and the availability of prompt-loading cargoes. However, the crude spot prices decline was partially
offset by stronger refining margins in major refining hubs and renewed spot market demand during the
second half of the month.

In May, the OPEC Reference Basket (ORB) value declined by $5.36, or 7.8%, m-o-m, to stand at $63.62/b.
All ORB component values declined alongside their respective crude oil benchmarks. Lower official selling
prices for most components in the three main markets also contributed to the drop.

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