Production boost comes despite weaker demand outlook, putting pressure on crude prices
Oil prices are set to face more downward pressure in the coming months following OPEC+’s decision to increase oil production by 411,000 barrels per day for June. This increase, announced over the weekend, mirrors last month’s unexpected hike and marks a significant shift in strategy for the group. Led by major players Saudi Arabia and Russia, OPEC+ is pivoting away from its previous approach of price support through output cuts. Instead, the group is now ramping up supply, even as global demand signals remain weak and markets are adequately stocked.
Why the Increase?
According to OPEC+, the decision reflects “current healthy market fundamentals.” However, analysts speculate that the increase might be a response to some member states, particularly Iraq and Kazakhstan, producing above their agreed quotas. This overproduction has caused internal friction within the alliance and may have prompted the decision to add more barrels to the market.
Despite the optimism within the group, oil prices have already slumped significantly. Brent crude has hovered around $61 a barrel, and West Texas Intermediate (WTI) remains below $60 — both hovering near multi-year lows. This marks a nearly 20% drop in crude prices since the start of 2025, largely driven by broader economic uncertainty, weaker-than-expected demand from China, and a steady increase in non-OPEC+ supply, particularly from U.S. shale producers.
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Market Consequences
The latest decision comes amid rising concerns that additional supply may further swell global inventories. Analysts at TD Cowen predict that the increase in output could add up to 200 million barrels to global oil inventories over the next three quarters. If this trend continues, oil prices could dip further, potentially reaching low $50s per barrel, which would be a significant blow to producers already struggling with soft prices.
Traders had anticipated some supply-side changes in OPEC+ production levels, particularly after internal discussions surfaced about the need to balance compliance across member countries. Iraq and Kazakhstan have been producing above their agreed-upon quotas, which has sparked friction within the alliance. The additional supply, combined with concerns about oversupply, raises the possibility of even lower prices in the short term.
Global Implications of the Policy Shift
OPEC+’s new direction also comes at a time of growing geopolitical and economic tensions. The decision could benefit consumers, especially in countries like the U.S., where lower fuel prices are a political priority. However, this shift could have serious consequences for oil-dependent economies that rely on higher oil prices to fund public spending.
In Saudi Arabia, for example, the fiscal break-even price for oil is estimated to be above $90 per barrel. With revenues falling due to lower oil prices, the Kingdom has already scaled back spending on large-scale infrastructure projects. The International Monetary Fund (IMF) has also downgraded its outlook for the region, highlighting the economic strain from prolonged lower oil prices.
Meanwhile, in the U.S., oil producers, particularly in the shale industry, are adjusting to the softer price environment. Major companies like Chevron have signalled that they will scale back capital spending and reduce share buybacks as they face a challenging market.
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In The End
The next OPEC+ meeting is scheduled for June 1, when members will determine production levels for July. Until then, the oil market is likely to remain volatile, with prices influenced by supply signals, ongoing geopolitical developments, and broader macroeconomic trends. Trade relations between the U.S. and China, as well as tensions in the Middle East, will likely continue to play a pivotal role in shaping market dynamics.
As OPEC+ shifts its strategy, oil prices may continue to slide, potentially putting the group’s long-term financial stability in jeopardy while offering short-term relief to consumers who are struggling with rising fuel costs. Only time will tell whether this strategy will pay off in the face of global economic uncertainty.
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