OPEC has made significant output hikes in 2021, driven by a V-shaped pandemic economic recovery, as demand recovered. After cutting by 9.7 million barrels per day (bpd) in 2020 following the pandemic collapse, 2021 was the year of getting barrels back to the market. 2022 and 2023 were years of significant output cuts. 2025 is the first year of output hikes since early 2022 to take back market share that was lost to the US since 2022 (38% in 2022 à 27.4% in 2024).

In March 2025, eight producers agreed to start reversing their 2.2 million bpd voluntary output cuts over an 18-month period from April 2025 to September 2026. OPEC taking back production (138k bpd in April and 411k bpd in May, June, and July) amid significant trade turmoil and heightened risk of recession due to tariff uncertainty is somewhat confusing. Taking barrels back to market as the economy experiences uncertainty and a lower economic growth rate severely pressures crude oil prices lower, thus impacting US oil production, which has significantly higher breakeven prices than OPEC countries. Trump’s thesis of lowering inflation through lowering oil prices seems logical, however, the great shale boom led by the US might come to an end if OPEC decides to hike production even more to put pressure on its members that persistently cheat on production quotas, such as Kazakhstan and Iraq. Lower oil prices are great for spurring worldwide economic growth, however, the US shale boom might come to an end as breakeven prices are higher than conventional oil extraction. Technological advancement significantly lowered shale oil breakeven prices, but the number of wells might be lowered if these prices of below 60$ per barrel persist. Also, shale oil wells produce significant amounts of gas, whose prices might rise in the current scenario of oil production lowering in the US and rising OPEC production. Shale wells provide flexibility of US oil production and can be used to take OPEC’s market share when prices are higher, as they can be rapidly scaled in times of slow OPEC-coordinated cuts.

As huge amount of oil production by OPEC is off the market for years (current production is around 27-27.5 million bpd) and can be scaled to more than 31 or 32 million bpd seen in 2016, 2017 and 2018, there is little reason to believe that oil prices can skyrocket back to 85-100$ per barrel and persist at these levels. I would rather argue for 40-50$ per barrel as OPEC punishes members that produce above quotas. Amid tariff turmoil, punishing Kazakhstan and Iraq, economic slowdown due to uncertainty, and the potential end of the war in Ukraine somewhere in our sights, there are essentially not many reasons to be very bullish on oil prices. War in Iran and direct conflict might raise concerns of 100$ oil, however, there are plenty of barrels to be brought back by OPEC and potential new oil wells by the US if that happens. Significant price spikes to 100$ might happen, however, it is hard to understand why they would persist and average at that level. Remember, in 2022 when a full-scale war between Ukraine and Russia started and heavy sanctions were imposed on Russia, WTI ended the year at approximately 80$ per barrel and reached a peak of 130$ just after the war started. As a result, put skew on the oil options market is back as option traders expect more downside than upside and buy puts and sell calls. Also, OPEC might be right to raise production as Trump tariffs are probably going to be significantly lower than announced at Liberation Day, and the European Union, led by Germany and China raise spending and try to spur economic growth. The recessionary narrative that led the markets post-Liberation Day might be over, and Atlanta Fed GDPNow might be right with its 3.8% annualized growth rate for Q2 of 2025.

Given the current macroeconomic environment, oil market dynamics, and geopolitical landscape, it seems unlikely that oil prices will sustainably remain above 70$ per barrel. With spare capacity available from OPEC, potential U.S. shale response, and softer-than-expected tariff impacts, supply can meet any temporary disruptions. Meanwhile, economic uncertainty and a potential resolution in Ukraine dampen bullish momentum. The options market reflects this sentiment, favoring downside protection. While short-term spikes are possible, a sustained rally appears unsupported. Barring an extreme geopolitical shock, oil prices are more likely to stabilize within the $50–65$ range, especially as growth and supply flexibility improve.