Oil markets are pricing two simultaneous pressures. On the supply side, OPEC+ has confirmed it will begin unwinding 200,000 barrels per day of voluntary production cuts starting in July, with the potential for additional unwinds in subsequent months if market conditions allow. The decision has added a supply overhang to an already weak demand narrative.
On the demand side, China's economic recovery remains uneven. The Caixin Manufacturing PMI for June came in at 50.2, barely above the 50 threshold and below the 50.6 consensus. While still in expansion territory, the trend is clearly decelerating from the 51.2 reading in May. Chinese crude imports in May averaged 11.1 million bpd, down from the record 12.5 million bpd in April.
The US dollar has been strengthening, with the DXY rising 1.5% in June to 106.2. Since oil is priced in dollars, a stronger dollar makes crude more expensive for non-US buyers, reducing global demand. The Fed's hawkish shift on rates is supporting the dollar and pressuring commodities broadly.
Brent crude for August delivery settled at $75.28, a $3.63 premium to WTI, reflecting the normal quality differential. The Brent-WTI spread widened from $2.50 at the start of June to $3.63, driven by strong Brent-linked exports from the North Sea.
The OPEC+ unwind adds structural downside pressure through H2 2026. Buyers should avoid extending hedges beyond Q3 until the market absorbs the additional 200K bpd in July. If the unwind accelerates to 400K bpd in August-September, WTI could test $65. Provide flexibility in term contracts to adjust volumes quarterly.