SINGAPORE, May 5 (Reuters) - In early Asian trading on Monday, oil prices experienced a significant drop of more than $2 per barrel as OPEC+ announced plans to accelerate oil output hikes. This decision has raised concerns regarding an oversupply in the market. Brent crude futures fell by $2.04 a barrel, or 3.33%, settling at $59.25 a barrel by 2240 GMT. Concurrently, U.S. West Texas Intermediate crude dropped by $2.10, or 3.60%, to $56.19 a barrel.
Both Brent and WTI crude contracts reached their lowest levels since April 9 at the start of trading on Monday. This decline followed the OPEC+ agreement to increase oil production for the second month in a row, which will see an additional 411,000 barrels per day (bpd) added in June. This increase follows a cumulative total of 960,000 bpd in production hikes for April, May, and June, representing a 44% reversal of the 2.2 million bpd cuts implemented since 2022, as calculated by Reuters.
The decision made by OPEC+ on May 3 to raise production quotas by another 411,000 bpd for June has led to heightened expectations that the global supply and demand balance could shift towards a surplus. Tim Evans, founder of Evans on Energy, highlighted in a recent note that this decision could have far-reaching implications for the oil market.
Furthermore, OPEC+ sources have indicated that if member countries do not improve compliance with their production quotas, the group could entirely reverse its voluntary cuts by the end of October. Saudi Arabia is reportedly advocating for a more rapid unwinding of previous output cuts as a means to penalize fellow members, particularly Iraq and Kazakhstan, for their lack of compliance.
In light of the accelerated production phase-out by OPEC+, Barclays has revised its Brent crude price forecast downwards. Analyst Amarpreet Singh stated that the forecast for 2025 has been lowered by $4 to $66 per barrel, while the outlook for 2026 has been adjusted down by $2 to $60 per barrel.
Simultaneously, rising tensions in the Middle East could further influence oil prices. Israeli Prime Minister Benjamin Netanyahu has pledged retaliation against Iran following a missile attack by the Tehran-backed Houthi group that landed near Israel's primary airport. In response, Iran's Defence Minister Aziz Nasirzadeh indicated that Tehran would respond if the United States or Israel launched attacks against Iran.
As the situation evolves, market participants will be closely monitoring both OPEC+ production decisions and geopolitical developments, as these factors will significantly impact future oil prices.
