Oil Prices Rally Over 2.7% Amid Supply Rebound, Market 'Reboot'

Oil prices climbed sharply in midday trading Tuesday, with both major benchmarks posting gains of more than 2.7%. West Texas Intermediate (WTI) crude was trading at $70.41 per barrel, up $1.86, while Brent crude rose $2.05 to $74.04, according to live price data. Natural gas saw a modest increase to $3.28.

The rally comes as the global oil market is "attempting a system reboot," according to J.P. Morgan analysts cited by Rigzone. This follows a period of extreme volatility driven by the Iran conflict and subsequent reopening of key shipping lanes.

A significant surge in supply from the Persian Gulf is a key factor reshaping the market. According to OilPrice.com, the United Arab Emirates raised its crude output to above 3.8 million barrels per day in June, its highest level since April 2020. This jump followed the UAE's exit from OPEC and OPEC+ on May 1, freeing it from production quota restrictions.

Combined crude and condensate exports from Saudi Arabia, the UAE, Kuwait, Iraq, and Iran rose by more than 3.5 million bpd from May to 10.07 million bpd in June, data from Kpler shows. However, this total remains well short of the 16.5 million bpd shipped a year earlier, indicating a gradual recovery. For instance, Saudi crude exports averaged 4.32 million bpd in June, still around 3 million bpd below February levels.

The increased supply has shifted market concerns from severe disruption to potential surplus, pulling prices down from the four-year highs above $126 per barrel seen in late April. The UAE's state oil company, ADNOC, has been selling crude at discounted prices, adding further downward pressure on global benchmarks, traders told Reuters.

In Asia, a major demand center, buyers are proceeding cautiously. OilPrice.com reported that Indian state-held refiners are considering a return to buying Iranian crude, but only if the United States extends a temporary sanctions waiver beyond its August 21 expiration date. Currently, uncertainty and ample alternative supply are limiting immediate appetite for Iranian barrels.

For Bakken operators, the midday price strength is a positive signal, though the local price remains subject to the regional differential. The Bakken differential was quoted at -$3.42 versus WTI, implying a local price near $66.99 per barrel. The recovery in global supply and the corresponding price reset create a more predictable, if less bullish, trading environment compared to the war-driven spikes of April and May. Operators will be watching whether the current price level can be sustained as the market absorbs the returning Gulf volumes and navigates the ongoing geopolitical uncertainties surrounding Iran.