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OPEC+ agreed another accelerated oil output hike for June

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Oil market shows tight immediate balances

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Driving season boosts demand, can absorb extra OPEC+ oil

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New oil from Brazil, Guyana to hit market by end 2025

By Robert Harvey and Dmitry Zhdannikov

LONDON, May 7 (Reuters) - The oil market appears to be

telling Saudi Arabia that its shift to pumping more oil after

five years of cutting output was well timed.

The kingdom has in recent weeks pushed fellow OPEC+ members

to produce more oil despite fears about an economic slowdown, a

marked change in policy that helped oil prices settle at a

four-year low on Monday.

But despite OPEC+ agreeing to raise output by a cumulative

near one million barrels per day (bpd) between April and June,

the oil market is still reflecting a perception of tight supply

over the next few months of peak summer demand.

That has pushed the futures curve, which reflects forward

prices, into a rare "smile" shape, a structure Morgan Stanley ( MS )

analysts said was last seen only briefly in February 2020.

Brent futures' most prompt July contract was trading

at a 74 cent per barrel premium to the October contract

late on Wednesday, a market structure known as backwardation,

which indicates immediate tight supply.

However, from November, prompt prices flip to a discount to

forward prices, a structure known as contango, indicating

oversupply and the likelihood that summer 2025 might be the last

gasp of a tight oil market.

Having backwardation and contango together is unusual and

gives the chart its "smile".

Energy Aspects analyst Richard Price said the structure was

a result of tight prompt supply coupled with expectations of

U.S. President Donald Trump's trade wars slowing economic

activity later in the year.

OPEC+ cited low stocks and healthy prompt demand when it

agreed on Saturday to raise output for July.

Global oil inventories stood near the bottom of their

historical five-year range at 7.647 billion barrels, according

to the International Energy Agency's latest available data for

February, down from 7.709 billion barrels a year earlier.

Meanwhile, refiners' appetite for crude is rising ahead of

the July-August peak driving season.

"Refinery maintenance in the Atlantic basin will start to

taper off, increasing oil demand (for refining)... Summer

driving should provide some support," BNP Paribas analyst Aldo

Spanjer said.

Global oil demand will rise by 1.3 million barrels per day

in the third quarter of 2025 from the second quarter to average

104.51 million bpd, the IEA said in its latest report in April.

The 1 million bpd increases already announced by OPEC+ and

the possibility of a further 0.4 million barrels per day in

July, almost fully match the predicted rise in demand.

HIGHER SUPPLY OUTLOOK

OPEC's decision to add more barrels to the market did change

the shape of the 'smile', but the fact that the structure did

not flip into contango reflects a balance between supply and

demand, said an executive at a major trading house.

At the start of last week, eight consecutive monthly Brent

contracts were backwardated through to January 2026, double the

current four. The four-month Brent spread was more

than twice as wide at $1.85 a barrel.

Outside of OPEC+, new projects coming online in Brazil and

Guyana should boost supply towards the end of 2025, the IEA said

in its monthly report in April.

Robust supply growth combined with slowing demand would

result in a rapid market weakening towards the end of 2025,

Morgan Stanley ( MS ) said.