Saudi Arabia: Saudi Arabia is signaling to allies and industry experts that it is no longer willing to support oil prices through further supply cuts and is prepared for a prolonged period of lower prices. This marks a major shift in strategy after five years of leading OPEC+ efforts to stabilize the market through deep output reductions. Frustrated by countries like Iraq and Kazakhstan exceeding production targets, Saudi Arabia pushed for a larger OPEC+ output increase in May, which contributed to oil prices falling below $60 per barrel. While Saudi Arabia has low production costs, it needs oil prices above $90 to balance its budget, and falling prices may force it to cut spending or delay major projects. Officials have indicated the kingdom can manage lower revenues by borrowing more and reducing expenditures.

U.S. Stockpiles: U.S. crude oil stockpiles unexpectedly fell by 2.7 million barrels last week, driven by higher refinery activity and increased exports. Analysts had expected a rise of 429,000 barrels, making the draw a significant surprise. Refinery utilization rates increased by 0.5% to 88.6% of total capacity. Gasoline inventories dropped by 4 million barrels, marking the ninth consecutive weekly decline—the longest streak since mid-2022. Distillate stockpiles, which include diesel and heating oil, rose by 900,000 barrels, contrary to expectations of a decline. 

Russia: Russia's Finance Ministry raised its projected 2025 budget deficit to 1.7% of GDP, up from 0.5%, after cutting its oil and gas revenue forecast by 24% due to expectations of persistently low oil prices. The revised budget includes an increase in spending by 830 billion rubles and allocates 6.3% of GDP to defense—the highest since the Cold War—as the war in Ukraine continues. Finance Minister Anton Siluanov emphasized that defense and social spending priorities will remain intact despite fiscal pressures. Analysts warn that Russia may need to raise taxes further, reduce some social spending, or increase borrowing to manage the growing deficit without cutting defense expenditures. The revised budget assumes a lower average oil price of $56 per barrel, while international trade tensions and a potential global slowdown are seen as major risks to Russia's economic growth, now forecast at just 1.8% in a high-risk scenario.

Market Overview: Oil prices continued to fall sharply due to expectations that Saudi Arabia may increase production and concerns over weakening global demand, particularly following a contraction in the U.S. economy. Analysts cite trade tensions, especially between the U.S. and China, and a potential loosening of OPEC+ production cuts as key drivers of bearish sentiment in the oil market. Saudi Arabia has signaled it is prepared to tolerate prolonged low prices, while several OPEC+ members may push for accelerated output hikes in upcoming meetings. U.S. tariffs and unpredictable trade policies have disrupted economic stability, increasing the risk of a global recession and further dampening oil demand expectations. As a result, forecasts for global oil demand growth in 2025 have been revised downward, while U.S. crude stockpiles fell last week, partly offsetting the negative demand outlook.

Over the past decade, U.S. oil companies have seen lower interest expenses due to higher oil prices, better drilling efficiency, and reduced debt levels, even as overall interest rates remain high. In 2024, 26 publicly traded oil companies reported interest costs of about $1.50 per barrel of oil equivalent (BOE), making up roughly 6% of production expenses. These interest expenses are lower than pre-pandemic levels both in real terms and as a share of production costs. While typically a small part of total production costs, interest expenses can vary with economic conditions. For instance, if oil prices fall but loan payments stay fixed, interest expenses can rise to over 15% of total production costs.

WTI crude oil settled at $59.24 a barrel on Thursday, holding relatively steady as strong earnings from Meta and Microsoft supported U.S. equities and offset some macroeconomic concerns. Traders remained cautious due to signs that OPEC+ may approve increased oil production at its upcoming meeting, which could weigh on prices further. U.S. GDP data showed a slight contraction and declining consumer confidence, prompting many hedge funds to retreat from crude markets over demand concerns. Talks between the U.S. and Iran were postponed, adding geopolitical uncertainty that limited further price drops. Meanwhile, unexpected declines in U.S. crude stockpiles provided some support, though the broader sentiment remains bearish amid rising supply and global recession fears.