Oil prices fall as OPEC+ plans further output increases

May 05, 2025 (MLN): Oil prices fell more than $2 a barrel in Asian trade on Monday as OPEC+ is set to further speed up oil output hikes, spurring concerns about more supply coming into a market clouded by an uncertain demand outlook.

Brent crude futures decreased by $1.85, or 3.02%, to $59.44 per barrel.

West Texas Intermediate (WTI) crude futures fell by $1.9, or 3.26%, to $56.39 per barrel by [11:15 am] PST.  

Both contracts touched their lowest since April 9 at Monday's open after OPEC+ agreed to accelerate oil production hikes for a second consecutive month, raising output in June by 411,000 barrels per day (bpd).

The June increase from the eight will take the total combined hikes for April, May and June to 960,000 bpd, representing a 44% unwinding of the 2.2 million bpd of various cuts agreed on since 2022, according to Reuters calculations.

"The May 3 OPEC+ decision to raise production quotas another 411,000 bpd for June adds to the market expectation that the global supply/demand balance is moving to a surplus," Tim Evans, founder of Evans on Energy said in a note.

The group could fully unwind its voluntary cuts by the end of October if members do not improve compliance with their production quotas, OPEC+ sources told Reuters.

OPEC+ sources have said Saudi Arabia is pushing OPEC+ to accelerate the unwinding of earlier output cuts to punish fellow members Iraq and Kazakhstan for poor compliance with their production quotas.

The 6-month Brent price spread flipped to a contango of 11 cents a barrel for the first time since December 2023, with oil cheaper now than in future months, reflecting expectations that the market is amply supplied.

Barclays and ING have also lowered their Brent crude forecasts following the OPEC+ decision.

Barclays reduced its Brent forecast by $4 to $66 a barrel for 2025 and by $2 to $60 a barrel for 2026, while ING expects Brent to average $65 this year, down from $70 previously.

"We now expect OPEC+ to phase out the additional voluntary adjustments by October 2025 but also expect slightly slower U.S. oil output growth," Barclays analyst Amarpreet Singh said in a note.

The net impact of the higher OPEC+ output and lower U.S. output has increased Barclays' estimate of supply in 2025 by 290,000 bpd for 2025 and 110,000 bpd for 2026, he said.

ING analysts led by Warren Patterson said the global oil balance is expected to move deeper into surplus throughout 2025, as Reuters reported.

"The oil market has been dealing with significant demand uncertainty amid tariff risks. This change in OPEC+ policy adds to uncertainty on the supply side," they added.

Meanwhile, tensions flared in the Middle East after Israeli Prime Minister Benjamin Netanyahu vowed to retaliate against Iran for the Tehran-backed Houthi group firing a missile that landed near Israel's main airport.

Iran's Defence Minister Aziz Nasirzadeh said on Sunday that Tehran would strike back if the United States or Israel attacked.

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