Brent crude oil prices have recently rebounded strongly, as renewed geopolitical supply concerns have reversed the previous downward trend. Although long-term concerns remain about increased production from oil-producing countries and a potential supply glut, the short-term geopolitical risk premium has quickly returned, driving a significant price increase. The UAE continues to expand production, Iraq plans to increase capacity, and Saudi Arabia maintains its market share; however, the new round of supply competition has not yet fully materialized. Coupled with repeated geopolitical disturbances, while oil prices have strengthened in the short term, the medium to long term still harbors the dual risks of a supply-demand reversal and a price war.



Brent crude oil prices surged during the session, rising more than 6.5% on the day and breaking through $79 per barrel, completely breaking away from the previous low range of $72.80 per barrel. Repeated geopolitical fluctuations have once again injected strong support into oil prices.

Ten days ago, Brent crude oil fell to $83.50 per barrel, and then continued to decline to a low of $72.80. The market generally expected oil prices to return to the pre-conflict low range. At that time, the US-Iran shipping agreement was finalized and shipping in the Strait of Hormuz returned to normal, which completely eliminated the geopolitical premium of crude oil and suppressed the continued weakness of oil prices.

Even though oil prices had previously fallen to their lowest levels this year, they had not yet broken below the baseline range before the US military action against Iraq in February. However, the market landscape is constantly changing, and recent renewed geopolitical tensions have completely reversed previous expectations of easing. Although oil-producing countries continue to push forward with their production increase plans and the long-term risk of oversupply has not been eliminated, short-term geopolitical supply risks are dominating the market, driving a rapid rebound in oil prices and temporarily pulling them out of the downward trend of ample supply and demand.
The market has already given clear signals that the UAE is actively increasing its crude oil exports. It's worth noting that the UAE withdrew from the Organization of the Petroleum Exporting Countries (OPEC) on May 1st, and is no longer subject to the organization's crude oil production quotas, meaning its increased production and exports are now unrestricted.

Iraq also plans to increase crude oil production, and there are reports that if its own oil production quota cannot be increased, Iraq may even consider leaving OPEC.

Compared to the proactive actions taken by the UAE and Iraq, Saudi Arabia has not yet made a public statement. However, given the current market situation, Saudi Arabia has few passive options. The country is unlikely to unilaterally cut production to support oil prices and will most likely increase production significantly in the future, launching a price war to maintain its market share. After all, Saudi Arabia will not stand idly by while neighboring oil-producing countries like the UAE and Iraq seize its market share.

This market movement is not the first time it has occurred. In March 2020, the OPEC+ production cut agreement completely collapsed, and international oil prices plummeted to the $30-40 per barrel range. Considering subsequent dollar inflation, this price range is equivalent to $40-50 per barrel today.

This shows that the international oil price is clearly on a strong upward trend in the short term, but the risk of a decline in the medium to long term still lurks, and the market is showing a differentiated pattern of "short-term strength and long-term pressure".

The core dynamic in the current crude oil market lies in the following: While a rapid rise in short-term geopolitical risk premiums supports a strong rebound in oil prices, the supply pressure from continued production increases by oil-producing countries has not subsided, and the long-term expectation of a loose supply-demand balance persists. Once shipping in the Strait of Hormuz fully stabilizes and geopolitical sentiment cools, oil-exporting countries will resume their battle for market share, and the oversupply risks previously masked by geopolitical tensions will resurface. At that point, the upward momentum in oil prices may halt, and the massive influx of new crude oil supply will continue to exert downward pressure on oil prices in the medium to long term.

The biggest uncertainty in the market still stems from the strategic shifts of oil-producing countries. The current recovery in oil prices has alleviated some of the pressure on these countries to cut production, but it hasn't changed their core objective of seizing market share. If geopolitical risks subside and oil prices stabilize, major oil-producing nations may again decide that "maintaining market share is more important than maintaining oil prices," collectively initiating production increases and disrupting the current market balance. This has been the pattern in previous oil price wars: short-term market recovery masks long-term supply and demand risks, oil-producing countries concentrate on increasing production to mitigate risk, ultimately leading to an unexpected drop in oil prices. This potential risk always hangs over the oil market.