Oil surged on Israel plan to attack Iran's nuclear facilities

·       Dow slips; Gold got a boost in addition to Trump’s latest tax cut stimulus plan, which may add $1T additional debt for the US

·       Gold is a major beneficiary of higher public deficit, debt, and currency devaluation

In the early Asian session, May 21, 2025, oil surged over 1% after a CNN report that Israel may be preparing actively for an imminent offensive on Iran's nuclear facilities to prevent Iran from developing a nuclear weapon. The CNN report, based on U.S. intelligence, indicates that Israel is preparing for a potential strike on Iran's nuclear facilities. However, it remains unclear if a final decision has been made. The US intelligence cites public and private statements from senior Israeli officials, intercepted communications, and observed military activities, such as the movement of air munitions and a completed air exercise, as evidence of these preparations. However, these actions could also be a strategic move to pressure Iran into abandoning parts of its nuclear program. The likelihood of a strike has reportedly increased in recent months, particularly if U.S.-Iran nuclear talks result in a deal that doesn't fully eliminate Iran's uranium enrichment, which Israel views as a critical threat.

This development could significantly impact oil markets. An Israeli strike on Iran's nuclear facilities could escalate regional tensions, potentially disrupting Iran's oil production or exports, which account for about 2% of global supply (roughly 2 mbpd). Iran's response, possibly targeting oil infrastructure or key shipping routes like the Strait of Hormuz (through which 20% of global oil passes), could further tighten supply and drive prices higher.

As a recapitulation, Brent crude spiked briefly above $90 in April 2024 on similar Iran tensions. Conversely, if the strike is limited or avoided due to diplomatic progress, the current oversupply (projected at 1.2 million b/d in 2025) could keep prices subdued, with Brent forecasted at $74/b for 2025 by the EIA. The risk premium from such an escalation could add $10-30/b to oil prices, depending on the severity and Iran's retaliation.

Overall, the situation remains fluid, with U.S. officials noting internal disagreements about the likelihood of an attack and Trump's preference for diplomacy over military action. Iran's weakened military state, following Israeli strikes in October 2024, and its economic vulnerabilities could embolden Israel. Still, the lack of U.S. support (e.g., midair refueling and bunker-busting bombs) limits Israel's capacity for a comprehensive strike.

Recent reports highlight a growing rift between U.S. President Trump and Israeli PM Netanyahu, primarily due to disagreements over Trump's pursuit of a new nuclear deal with Iran and his push for a permanent Gaza ceasefire. These tensions could significantly influence oil markets, given the geopolitical implications for the Middle East, a critical region for global oil supply.

Trump’s Nuclear Talks with Iran:

Trump has initiated direct negotiations with Iran to curb its nuclear program, aiming for a deal that may allow limited uranium enrichment under strict oversight, contrasting with Netanyahu’s demand for “zero enrichment” and complete dismantlement of Iran’s nuclear infrastructure. Netanyahu was reportedly blindsided by Trump’s announcement of these talks during an April 2025 White House visit, causing friction as Israel sees Iran’s nuclear capabilities as an existential threat.

Potential Oil Market Impact:

A successful U.S.-Iran deal could lead to sanctions relief, potentially increasing Iran’s oil exports (currently ~2 million b/d). This would add to the global oil surplus (projected at 1.2 million b/d in 2025), exerting downward pressure on prices. However, if talks fail or Israel launches a preemptive strike on Iran’s nuclear facilities, as speculated in CNN reports, it could disrupt Iran’s oil production or exports, adding a risk premium of $10-30/b to Brent crude prices. For reference, Brent spiked above $90/b in April 2024 amid similar tensions. Trump’s preference for diplomacy over military action, coupled with U.S. opposition to strikes due to Gulf Arab concerns, reduces the immediate risk of an Israeli attack. However, Iran’s weakened military state (post-2024 Israeli strikes) and Netanyahu’s perception of a “historic window” to strike could escalate tensions if diplomatic progress stalls.

Gaza Ceasefire Disputes:

Trump has pushed for a permanent Gaza ceasefire to end the 18-month war with Hamas, focusing on hostage releases and regional stability, including Saudi-Israeli normalization. Netanyahu, however, has resisted a full end to the war, prioritizing Hamas’s destruction and maintaining Israel’s right to resume fighting, which led to the collapse of a January 2025 ceasefire in March. This divergence has strained their relationship, with Trump reportedly sidelining Netanyahu on key decisions, such as direct U.S.-Hamas talks for hostage releases, and in fact, one Israeli-American hostage was released recently.

A prolonged Gaza conflict increases regional instability, potentially affecting oil shipping routes like the Strait of Hormuz or the Red Sea, where Houthi attacks (linked to Iran) have persisted. A Trump-brokered ceasefire could stabilize the region, reducing the geopolitical risk premium and supporting lower oil prices. Conversely, Netanyahu’s intensification of the war, as seen in recent Gaza strikes, could sustain or increase this premium, particularly if Iran-backed groups escalate retaliatory actions against oil infrastructure.

Trump’s transactional approach and desire for quick diplomatic wins (e.g., hostage releases and Saudi normalization) suggest continued pressure on Netanyahu for a ceasefire. However, Netanyahu’s domestic political pressures, including coalition reliance on far-right ministers opposing a permanent ceasefire, make compliance difficult, increasing the risk of prolonged conflict.

Trump Sidelining Israel:

Trump’s Middle East strategy, including his May 2025 trip to Saudi Arabia, Qatar, and the UAE without visiting nearby Israel, has fueled Israeli concerns about being marginalized. His deals with Hamas, the Houthis, and Iran, often without consulting Israel, have heightened tensions. Israel’s sense of isolation could prompt unilateral actions, such as a strike on Iran’s nuclear facilities, especially if Netanyahu believes U.S. support is waning.

Such an action could disrupt oil markets significantly, as Iran might retaliate by targeting Gulf oil infrastructure or closing the Strait of Hormuz. However, Trump’s focus on “America First” and economic deals (e.g., $600 billion Saudi investment) prioritizes regional stability, likely capping extreme escalations unless provoked. Deal maker Trump is now trying to use his tariff & trade tool to de-escalate geopolitical tensions across the spectrum from Ukraine, and Gaza to the India-Pakistan Pahelgam war. While Trump publicly downplays rifts, stating his actions are “good for Israel,” his frustration with Netanyahu’s intransigence on Gaza and Iran suggests limited U.S. backing for aggressive Israeli moves.

Oil plunged almost 18.5% in April 2025 on the Trump trade war tantrum and the concern of not only the Trumpcession but also a synchronized global recession on both sides of the Atlantic and Pacific (US-Europe-China/Asia), which may affect global oil demand. But oil also recovered almost 8% so far in May after Trump scaled back his hawkish tariff narrative and paused it till July-August, including China. Also, Trump’s flip-flops on Iran's nuclear deal caused some volatility in oil.

Overall, oil plunged almost 39% after scaling a high of around $95.31 in September 2024 and slid to a low of $58.40 in April 2025. While geopolitical risks like the Ukraine and Gaza war, including Iran-Israel/US war narrative and low inventories, provide some support, OPEC+ output hikes and non-OPEC supply growth (1.2 mbpd outweigh bullish factors. Recently, oil was also undercut by a report that US Shale oil producers may slash production due to falling prices. Also, Trump’s efforts for a full Ukraine war ceasefire and a potential withdrawal of Russian oil sanctions are undercutting oil prices.

But Trump’s Secondary tariffs and sanctions on Venezuela, Iran, and similar threats on Russia could tighten supply. Also, lingering Middle East tensions (e.g., Israel-Lebanon conflicts) add further disruption risks, potentially boosting Brent oil. Inventories remain at historic lows (since 2017), providing a price floor until builds begin in Q2CY25. This tightness could amplify price spikes if supply disruptions occur. India’s rising oil consumption (0.3 mbpd increase in 2025) and China’s stimulus measures could surprise on the upside, supporting demand. Global demand is still projected to reach 106 mbpd in 2025. Also, OPEC+ is unlikely to flood the market unless Brent exceeds $85/bbl, maintaining some supply restraint to counter recession-driven demand weakness.

Ongoing conflicts in the Middle East, which account for about one-third of global seaborne oil trade, continue to introduce volatility. Recent sanctions on Russia and Iran have increased market uncertainty. While these sanctions have not yet significantly disrupted oil loadings, some buyers have scaled back purchases, potentially tightening supply. The EU's embargo on Russian seaborne oil in 2022, following the Ukraine invasion, previously pushed Brent crude to over $120 per barrel, highlighting the impact of such measures.

OPEC+ Production Decisions:

OPEC+ (including allies like Russia) has been managing supply through production cuts. In 2024, OPEC+ reduced output by an estimated 1.3 million barrels per day (b/d), but plans to unwind 2.2 million b/d of voluntary cuts starting in October 2024 have contributed to downward price pressure. However, overproduction by some members (e.g., Kazakhstan, UAE, Iraq) could add supply, potentially capping price gains.

Supply Dynamics:

Non-OPEC+ Production Growth: Strong production growth from non-OPEC+ countries, particularly the US, Canada, Brazil, and Guyana, has offset OPEC+ cuts. In 2024, these countries increased liquid fuel production by 1.8 mbpd, with the U.S. leading due to record-high shale output. This robust supply has contributed to a projected global oil surplus of 1.2 mbpd in 2025, exerting downward pressure on oil prices.

U.S. Shale Challenges:

Despite high U.S. production, the shale sector faces hurdles. The Dallas Fed Energy Survey indicates that U.S. shale firms need Brent prices around $65/b to profitably drill new wells. Trump’s bellicose policies on Canada and Mexico, which supply 70% of U.S. crude imports, could raise costs and discourage drilling, potentially tightening supply.

Spare Capacity:

High spare capacity (over 7% of global production) acts as a buffer against price spikes, reducing the impact of potential supply disruptions.

Demand Trends:

 China’s Slowing Demand: Weak demand from China, the largest driver of global oil demand growth, has capped price increases. China’s oil consumption growth is projected at only 0.2 million b/d in 2025 and 2026, lower than expected due to slower economic growth (forecast at 4.4% in 2025) and increasing adoption of electric vehicles (EVs). However, recent stimulus measures and a 14-million-ton increase in crude import quotas for 2025 could boost demand.

India’s Rising Demand: India is emerging as a significant demand driver, with oil consumption expected to grow by 0.2 million b/d in 2025 and 0.3 million b/d in 2026, driven by transportation fuel needs. This partially offsets China’s slowdown; EV penetration in India is very slow amid the lack of an adequate EV ecosystem.

Global Demand Growth: Global oil demand is projected to rise by 1.0 million b/d in 2025, down from 1.2 million b/d in early 2025, due to Trump trade war tensions and a fragile macroeconomic environment. Asia, led by China and India, accounts for nearly 60% of this growth, particularly in petrochemical feedstocks.

Macroeconomic Factors and Trade Tensions:

Trump Trade & Tariffs: Escalating U.S. tariffs, announced in April 2025, and retaliatory measures from other countries have raised concerns about global economic growth, reducing oil demand forecasts by 0.4 mbpd for 2025. While oil and gas imports were exempted, fears of inflation and slower growth have driven oil to a multi-year low.

Economic Growth Concerns: Weaker-than-expected global economic growth, particularly in China and advanced economies, poses a downside risk to oil demand. Tighter monetary policies to combat persistent inflation could further dampen demand.

Highlights of the IEA Monthly Oil Report- May 2025

“Global oil demand growth is projected to slow from 990 kb/d in 1Q25 to 650 kb/d for the remainder of the year as economic headwinds and record EV sales curb use. Demand growth averages 740 kb/d in 2025 and 760 kb/d in 2026, despite accelerating OECD declines of -120 kb/d and -240 kb/d, respectively.

World oil supply looks on track to rise by 1.6 mb/d to 104.6 mb/d on average in 2025 and by an additional 970 kb/d in 2026. Non-OPEC+ producers are set to add 1.3 mb/d this year and 820 kb/d next year, even as US LTO supply has been reduced. Based on the latest plans, OPEC+ will add 310 kb/d of extra supply this year and 150 kb/d in 2026.

Refinery throughput forecasts for 2025 and 2026 are broadly unchanged from last month’s Report at 83.2 mb/d and 83.6 mb/d, respectively. Annual gains of around 400 kb/d in both years are driven exclusively by non-OECD regions. Refining margins reached 12-month highs across most regions and configurations in late April, as a discernible shift in crude pricing boosted profitability.

Global oil stocks rose by 25.1 mb in March, led by a 57.8 mb increase in crude, but at 7,671 mb remained well below the five-year average (-221 mb). Total OECD inventories increased by 3.1 mb, while non-OECD stocks rose by 21.3 mb, and oil on water was up slightly by 0.7 mb. Preliminary data show global oil inventories built further in April.

Benchmark crude oil prices fell by around $10/bbl over April and into May amid escalating US tariffs and larger-than-expected OPEC+ output hikes. Bearish sentiment eased somewhat after the US reached a trade deal with the UK on 8 May and a 90-day accord with China on 12 May. Russian crude prices averaged $55.64/bbl in April, with all major export grades below the $60/bbl price cap. At the time of writing, North Sea Dated was trading at around $66/bbl.

In the balance

Oil prices resumed their downward trajectory in late April and early May as trade tensions impacted financial and commodity markets and OPEC+ agreed to a further unwinding of production cuts. Bearish sentiment subsequently eased somewhat after the United States reached a trade deal with the United Kingdom on 8 May and a 90-day accord with China on 12 May. Nonetheless, increased trade uncertainty is expected to weigh on the world economy and, by extension, oil demand. Brent crude oil futures slumped by $14/bbl in April to a four-year low of just above $60/bbl by early May, before rebounding to around $66/bbl at the time of writing.

Signs of a slowdown in global oil demand growth may already be emerging and will be tracked closely. Following a relatively robust 1Q25, the latest non-OECD delivery data, especially for China and India, have been weaker than expected. We now see growth at a more subdued rate of 650 kb/d for the remainder of 2025, resulting in an average annual increase of 740 kb/d, followed by a rise of 760 kb/d in 2026. Despite the recent soft patch, emerging economies remain the main driver of growth, adding 860 kb/d this year and 1 mb/d next year – in contrast to an accelerating decline in OECD countries of -120 kb/d and -240 kb/d, respectively.

Amid the weaker outlook for the world economy and global oil demand, OPEC+ surprised the market in early May by announcing a second consecutive monthly increase of 411 kb/d for June, effectively advancing the bloc’s production to levels it had previously scheduled for October 2025. The actual gain will be lower than the nominal figures, as several countries – including Kazakhstan, the UAE, Iraq, and Russia – continue to produce above their targets, while others are constrained by capacity limits, and some will make compensatory cuts for previous overproduction. Taking into account the new supply targets through June, OPEC+ looks set to pump an additional 310 kb/d this year and 150 kb/d in 2026. A further tightening of sanctions enforcement on Venezuela, Iran, and Russia may yet offset some of those increases.

Meanwhile, one of the most immediate impacts of the recent slump in oil prices is expected to fall on US shale output. In their latest earnings calls, independent producers said they would opt to trim rig counts and shave up to 9% off the previous 2025 capital expenditure guidance. As a result, we have lowered our forecast for US light-tight oil production for the second month in a row, by 40 kb/d in 2025 and 190 kb/d in 2026. US total supply growth is now assessed at 440 kb/d and 180 kb/d, respectively, reaching 20.9 mb/d in 2026. As US tight oil growth slows, conventional projects will underpin non-OPEC+ supply increases of 1.3 mb/d this year and 820 kb/d in 2026.

With the rises in global supply expected to considerably outpace demand growth, oil inventories are forecast to jump by an average of 720 kb/d this year and 930 kb/d next year, compared with a decline of 140 kb/d in 2024. This sets the stage for a further rebalancing of supply and demand fundamentals.”

Conclusions: 

The IEA, EIA, and OPEC reports show a well-supplied market with growing surpluses in 2025–2026, driven by non-OPEC+ production and slowing demand growth. OPEC’s optimistic demand forecasts contrast with the IEA’s conservative outlook, reflecting differing views on energy transitions and economic conditions. Geopolitical risks, including potential disruptions from Israel-Iran tensions, remain a key upside risk to prices. Oil is under stress despite lingering geo-political tensions (Israel/Iran and Russia-Ukraine war) as demand is not growing as expected because of the increasing adoption of EVs, HSR and also the increasing cost of maintaining a personal car in various countries like India, where the middle class is struggling under the higher cost of living.

Overall, if we take an average of OPEC+IEA+EIA data, there was some glut around +0.27 mbpd (more supplies than demand) in 2025, which may increase to almost +0.97 mbpd in 2026 against almost rebalancing in 2024 and a slight glut in 2022-23.

Weekly Technical trading levels: oil

Technically Oil (63.00) now has to sustain over 65.50 for any further rally to 67.00/68.00-69.00/70.00 and  72.00/73.00-74.00/76.50 and further 78.00-79.00/80.50-82.00/85.00-88.00-90.00/91.00-95.00; otherwise sustaining below 65.00-64.00, oil may further fall to 62.00/60.00-57.00/55.00 in the coming days.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 41400) now has to sustain over 41800 for a further rally towards 42000/42500-43000/43300* and 43500*, and even 44600-45200 in the coming days; otherwise sustaining below 41700, DJ-30 may again fall to 41000/40600-4010039900 and 39700/38600-38000/37700-37300/37000 in the coming days.

Similarly, NQ-100 Future (20200) has to sustain over 20800 for a further rally to 21100/21400-21700*/22000* and 22400-22600 in the coming days; otherwise, sustaining below 20750/20600-20500/20400, NQ-100 may again fall to 20000/19600-19400/19200 and 19100/18800-18600/18000-17600/16400 and 16200-15800 in the coming days.

Also, technically Gold (CMP: 3240) has to sustain over 3275-3300 for any recovery to 3325/3375* and 3400/3425-3450/3505*, and even 3525/3555 in the coming days; otherwise sustaining below 3290-3275, Gold may again fall to 3255/3225-3200/3165* and further to 3130/3115*-3075/3015-2990/2975-2960*/2900* and 2800/2750 in the coming days.