Oil Market Update - July 11, 2025
Market Overview
Oil prices have seen a slight rebound, gaining 2% on Friday, although the market remains cautious. Investors are currently assessing the implications of potential new sanctions on Russian crude oil, which are being weighed against an increase in OPEC+ output and forecasts indicating a decline in global demand.
EU Sanctions Proposal
The European Commission is in the process of developing its 18th sanctions package, which includes a proposal to replace the existing $60 per barrel price cap on Russian oil with a more dynamic floating mechanism. This new system aims to set the cap at $50 per barrel, which would be 15% below the average market prices observed over the past 10 weeks. The mechanism would also feature automatic quarterly adjustments to maintain pressure on Russia.
Countries such as Greece, Malta, and Cyprus, which previously opposed the sanctions without G7 backing, are now open to negotiations. However, Slovakia is currently blocking the sanctions package, seeking concessions regarding Russian gas supplies. Some EU member states are considering moving forward with the sanctions even without full U.S. support, although backing from the Trump administration would lend additional legitimacy to the measures.
Market Drivers
Several factors are influencing the oil market:
- Seasonal demand is on the rise.
- Houthi attacks in the Red Sea are disrupting trade routes.
- OPEC+ plans to increase output by 548,000 barrels per day starting in August, with potential further increases in September.
- OPEC has revised its global oil demand forecast for 2026-2029 downward, citing a slowdown in China.
- Despite these challenges, Saudi Arabia is preparing its largest oil shipment to China in over two years, indicating resilient demand.
Sanctions and Speculation
The primary bullish driver in the market appears to be the EU's proposed new cap mechanism and speculation regarding potential new U.S. sanctions on Russian oil. Initial signs of a thaw in relations between Washington and Moscow had raised hopes for easing sanctions; however, Putin's hardline stance and ongoing tensions over Ukraine have complicated matters.
Trump has consistently threatened to impose tough sanctions on Russia if no agreement is reached regarding Ukraine, increasing the likelihood of further restrictions on Russian commodities, particularly oil, which is a significant revenue source for Russia. The EU's determination to pursue stricter sanctions is also evident.
If the new cap mechanism is implemented, it could significantly reduce the availability of Russian crude on global markets. A lower cap, such as $50, could limit supply and potentially drive prices higher if Russia finds exports unprofitable under the new terms. Conversely, if the cap remains above Russia's actual export price, the overall impact may be neutral. Nonetheless, the anticipation of a more dynamic EU approach has already led to speculative movements in oil futures.
Technical Analysis
On the technical front, crude prices are breaking above the 50-day Exponential Moving Average (EMA), indicating a potential return to an uptrend following a recent stabilization phase. This comes after significant sell-offs triggered by easing tensions in the Middle East and a ceasefire between Israel and Iran.