HSBC expects any future flare-ups in the Middle East region to have diminishing impacts on oil prices, while a major producer group's strategy, tariffs and summer oil demand will take center stage.

The Organization of the Petroleum Exporting Countries and allied producers' move to increase its output by nearly 550,000 barrels per day came as a surprise. HSBC said it expects another 550,000-b/d hike for September to be announced at the group's next meeting on Aug. 3, leaving the 2.2-million-b/d voluntary cuts fully unwound by the end of September.

However, output hikes should lag quotas as members are already over-producing. Summer demand in the Northern Hemisphere and in the Middle East is absorbing extra OPEC+ barrels for now, HSBC noted.

Based on HSBC's updated supply and demand forecasts, the surplus should rise sharply to over 2 million b/d in the fourth quarter and nearly 1.9 million b/d in 2026, which would raise downside risks to prices.

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