The Saudi Energy Minister stated that if the countries with excess production do not improve their performance, the increase in production in May will merely be the "appetizer." Goldman Sachs has lowered the oil price to $66 per barrel, while Citigroup and JPMorgan predict that Crude Oil Product prices will eventually fall to around $60 per barrel.
OPEC+, traditionally a staunch defender of high oil prices, unexpectedly decided to significantly increase production in May, leading to a sharp drop in oil prices and placing investors in a new market turmoil. As of the time of writing, the main contract for Brent Crude futures fell by 3%, dropping below $68 per barrel, the lowest level since November 2021. WTI Crude futures fell to the lowest level since May 2023, reporting a minimum of $64.62 per barrel, with a daily drop exceeding 3%.
According to a statement released on April 3rd by the OPEC website, the OPEC+ organization agreed to increase oil supply to the market by 0.411 million barrels per day in May, three times the original plan. Representatives at the meeting revealed that this move is aimed at "punishing" those violators by lowering oil prices.
Saudi Energy Minister Prince Abdulaziz bin Salman has run out of patience. Previously, Kazakhstan and Iraq had long been overproducing, which has greatly displeased Saudi Arabia. According to representatives at the meeting, the prince stated that if these countries do not improve their performance, the unexpected increase in production in May is merely an "appetizer."
This action marks the increasing pressure OPEC+ faces in balancing the Global oil market, compounded by the trade tariffs announced by Trump, which have already impacted the Crude Oil market. Brent Crude futures at one point plummeted 7.3%, marking the largest drop in two years. As of the time of writing, Brent is trading at $69 per barrel.
Goldman Sachs has lowered its oil price expectations following the plunge in oil prices, reducing its December Brent Crude price forecast by $5 to $66 per barrel. Analysts, including Daan Struyven, stated in a report that oil price volatility "may also remain high due to rising recession risks." Citigroup and JPMorgan predict that Crude Oil prices will eventually fall to about $60 per barrel.
Amid geopolitical pressures, Saudi Arabia's "patience" has run out.
The timing of OPEC's announcement seems to be no coincidence, with the market widely speculating that Riyadh intends to amplify its impact on suppressing oil prices. Helima Croft, head of commodity strategy at RBC Capital, stated that this move is intended to send a warning to Kazakhstan, Iraq, and even Russia, reminding them of the cost of continued overproduction.
Kazakhstan has angered Saudi Arabia by significantly increasing production in its giant Tengiz oil field's new project. Despite Kazakhstan's promise to better comply with OPEC+ production limits, its output in February remained 0.3 million barrels per day above the target.
Although the representatives at the meeting were surprised by its outcome, they supported measures to end violations and backed the proposal for a major increase in May made by Saudi Arabia and Russia. Bob McNally, president of Rapidan Energy Advisors LLC, believes this move aims to encourage Kazakhstan and Iraq to improve their compliance in a balanced manner.
Additionally, some Analysts speculate that Saudi Arabia and Russia may hope this action will appeal to the U.S. President, who has urged OPEC to lower oil prices. The increase in OPEC+ production also aids Trump in fulfilling his promise to cut Iranian oil exports.
Wall Street is revising down its oil price expectations.
Key oil Indicators are signaling a trend towards looser supply.
As of Thursday's closing, the global benchmark Brent Crude's inter-month price spread has generally narrowed, particularly in the declines of the longer-dated Futures. For example, the price spread between the near-month and fourth-month contracts ended at a spot premium of $1.84 per barrel, down from $2.16 the previous day. The spot premium for the six-month price spread on Thursday was $2.80 per barrel, compared to $3.53 on Wednesday.
The trend in forward contracts is similar, with one-year price spreads and December-December spreads (both important indicators of long-term supply-demand balance) also showing declines.
As OPEC+ additional oil begins to enter the market, oil prices may face greater downward pressure. Goldman Sachs revised down its oil price expectations following the plummet in prices, lowering its December Brent crude price forecast by $5 per barrel to $66 per barrel. Goldman Sachs stated in a report:
Given the rising risk of economic recession and that OPEC+ may further increase supply, our revised oil price forecast still carries downside risks, especially for the 2026 forecast.
Citigroup and JPMorgan predict that Crude Oil prices will ultimately fall to around $60 per barrel.
Norbert Ruecker, the economic director of Julius Baer & Co. Ltd., stated that with this year's oil demand almost stagnating, the outlook for oversupply is even more severe.
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