Market Report Week 22 - 27.05.2025

News about sanctions and geopolitics are other key themes setting the day-to-day agenda in the oil market.
Friday, the fifth round of nuclear negotiations between the United States and Iran concluded in Rome with "some but not conclusive progress," according to Omani mediator Badr al-Busaidi. 
However, the talks remain in reality deadlocked over uranium enrichment: Washington demands a complete halt to Iran's domestic enrichment, while Tehran insists on its sovereign right to continue to enrich uranium for peaceful purposes. 
Despite the lack of a breakthrough, both sides have agreed to reconvene. The next round of talks is scheduled for Muscat, Oman, but no date has been set. 
The negotiations occur amid heightened regional tensions, including Israeli threats to strike Iranian nuclear sites. 
Despite the ongoing negotiations, we still doubt we will see a nuclear agreement between Iran and the US. Hence, we still expect the US to tighten sanctions under its “maximum pressure” campaign to reduce Iranian oil exports to zero. 
However, if a deal is reached, the impact on oil supply could be significant, not necessarily because Iran might add 200,000 to 400,000 barrels per day to the market, but because up to 1 million barrels of existing Iranian exports would no longer be at risk of being removed. However, the market narrative shifts almost daily and creates intra-day volatility.
All in all, we still see a higher probability of a no-deal scenario than a deal. Therefore, we continue to view sanctions on Iran as a supportive factor for oil in H2 2025.
Attention is also on Russia. Although Putin proposed peace talks, he did not attend the negotiations between Ukraine and Russia in Turkey. Following Russian rhetoric last week and severe bombings in Ukraine over the weekend, it is evident to everybody that Russia has little interest in a ceasefire agreement. Trump may also have changed his view on Russia, calling Putin Crazy over the weekend. 
We anticipate new sanctions from the EU and the UK, including lowering the price cap on Russian oil to between USD 45 and 50. However, the G7 meeting last week showed that the US is unlikely to implement similar measures. Nonetheless, sanctions targeting the Russian oil sector, which could at least affect oil flows on the margin, are progressing and supporting oil prices. 

Last week, a Bloomberg report quoting anonymous OPEC+ delegates said the group once again discussed a significant production increase of 411,000 barrels per day. If implemented, it would mark the third monthly increase of this scale. The next OPEC+ meeting, for the eight major countries currently phasing in 2.2 mb/d of oil production, is set for May 30, with a possible production hike coming into effect on May 30. All 27 members of OPEC+ will meet tomorrow, Wednesday. 
It remains unclear what is driving OPEC+’s latest policy shift. Officially, the group refers to healthy market balances and low inventory levels, though that explanation is met with scepticism. Unofficially, the move appears driven by Saudi Arabia’s desire to pressure quota violators such as Kazakhstan and Iraq to cut output. By raising production overall, the Saudis are also regaining internal market share within the group.
There are also speculations that OPEC+ unofficially targets market share from US producers, who are struggling at current price levels. Additionally, there is speculation that Saudi Arabia may seek to align itself with Trump, who has publicly preferred oil around USD 50.
However, no matter the reason, the change in OPEC+ production policy has surprised the market and added to uncertainty and volatility. Note that the extra OPEC+ oil coming to the market so far has been modest due to compensation cuts, and that the first significant production increase only occurred here in May.

First, there is growing concern about long-term US interest rates. The 10-year yield rose above 4.5 per cent, and both the 20- and 30-year yields traded above 5 per cent last week. Long-term rates are approaching their highest levels in two decades.
With an already massive federal debt and large deficits expected in the coming years, interest payments on US government debt are set to rise sharply. Last week, the Trump administration pushed its budget through the House of Representatives. It now moves to the Senate. Even during economic expansion, the plan outlines a deficit of more than 6 per cent of GDP. A common rule of thumb suggests that the figure could rise by five percentage points in a recession scenario.
Markets are simply losing confidence in US Treasuries. Moody’s removed its AAA rating for the US last weekend – the last of the three major rating agencies to do so. Rising yields are negative for risk appetite and weigh on oil prices.
Second, the US dollar is under pressure. In the past, the dollar typically strengthened in times of financial and economic uncertainty. That’s no longer the case, as the uncertainty originates in the US. Just like Treasuries, investors are starting to lose faith in the dollar. It now weakens in periods of stress and strengthens when markets turn optimistic. Hence, a lower oil price has gone hand in hand with a weaker US dollar, as measured by the DXY dollar index below. 
However, oil is not solely dependent on US demand, which makes it more resilient than, for example, US equities. Investors may even seek USD-denominated commodities when the dollar comes under pressure. Historically, a weaker dollar tends to support the oil price, and that pattern may be about to return. 
The sharp moves in bond and FX markets contribute to significant intraday volatility in oil.