Rystad Energy: OPEC+ may raise output if US supply disruptions deepen

In response to this, Brent crude fell 4% in early trading, dropping below US$70/bbl; a US$5/bbl correction from earlier levels.

Rystad Energy’s breaking news market update from Global Head of Commodity Markets - Oil, Mukesh Sahdev:

“OPEC+ has made an opportunistic move by boosting supply in May, capitalising on the expected stagnation in non-OPEC production.

With potential supply disruptions stemming from sanctions and tariffs – on both sellers and buyers – oil prices are unlikely to stay below US$70 for long.

Rystad Energy expects the recent price slide to be short-lived, cushioned by anticipated summer demand and ongoing geopolitical risks.

At the same time, there’s a clear signal from OPEC+ to uphold compliance and avoid a surplus that could threaten the market’s current backwardation structure.

Future actions will likely hinge on how US sanctions, tariffs, or military tensions unfold.”

During yesterday’s OPEC+ meeting, eight OPEC+ producers (the OPEC-8) – Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman – confirmed an accelerated crude oil output increase of 411 000 bpd starting in May 2025.

This adjustment, equivalent to three monthly increments, exceeds the market’s prior expectation of a 135 000 bpd hike for May, as reflected in pre-meeting forecasts.

This move brings forward a larger volume of supply as part of the ongoing unwinding of the 2.2 million bpd voluntary cuts that began on 1 April.

Expectations shift at OPEC+ level

• Pre-meeting expectation: Market data indicated an anticipated increase of 135 000 bpd for May, consistent with the gradual unwinding schedule of 2.2 million bpd over 18 months (April 2025 to September 2026), averaging 122 000 bpd per month across the eight members that have agreed to increase output.
• Post-meeting reality: The confirmed 411 000 bpd hike for May triples the expected increment, accelerating the supply return by incorporating two additional monthly steps. As per the group's statement, this brings the total output increase to 1.23 million bpd over three months (May to July 2025).

The decision signals OPEC+’s confidence in the market’s ability to absorb additional supply, though it introduces new complexities given persistent macroeconomic uncertainties, fluctuating demand signals and geopolitical risks.

Thursday’s OPEC+ announcement confirms Rystad Energy’s previous predictions of a high likelihood for an unwind, and even more than anticipated, due to the emerging demand-supply gap from March to August.

The updated production targets for May set total OPEC-8 output at approximately 30.96 million bpd, with individual country allocations as follows: Algeria at 919 000 bpd, Iraq at 4.05 million bpd, Kuwait at 2.44 million bpd, Saudi Arabia at 9.2 million bpd, UAE at 3.02 million bpd, Kazakhstan at 1.49 million bpd, Oman at 768 000 bpd, and Russia at 9.08 million bpd.

By opting for an accelerated supply increase, OPEC+ is aiming to restore more barrels to the market at a time when crude prices have faced downward pressure.

The timing of this decision is particularly notable, as it follows weeks of mixed signals from oil markets, including non-OPEC+ countries increasing production (particularly the US, Brazil and Canada), the US trade war (sanctions and tariffs), China’s lower than expected demand, the Russia-Ukraine ceasefire failure and internal pressure from member states scrambling for higher targets that would match their new capacities.

Non-OPEC+ production is not expected to grow in May and allows OPEC+ a good opportunity to add more barrels.

Compliance to play a central role in future meetings

A key factor in making the OPEC+ strategy work, however, is compliance.

Some members, particularly Kazakhstan, have struggled to stay within their quotas, producing beyond agreed limits. OPEC+ has emphasised the need for compensation.

On 3 March 2025, the OPEC-8 reaffirmed their commitment to compensate for overproduction since January 2024, with updated plans submitted to the OPEC Secretariat by 20 March 2025.

These plans, frontloaded to address overproduced volumes earlier, aim for full compensation by June 2026.

If these commitments are not met, the group risks losing credibility, which could lead to instability in both production discipline and market confidence.

The 3 April statement noted that the May hike provides an opportunity to accelerate compensation, particularly for Kazakhstan.

At its core, this decision reflects OPEC+’s ongoing balancing act.

The group is willing to put more barrels into the market, but only on its own terms.

If demand weakens further or external supply grows too quickly, OPEC+ retains the flexibility to slow or reverse production hikes.

OPEC+ is still in control, and it will not allow prolonged price drops without taking action.

OPEC+ in a strong position

The decision to boost production also underscores the strong strategic position OPEC+ holds across several fronts:

• Spare capacity: OPEC+ retains the ability to increase supply as needed to contain price spikes, providing a key lever of market control.
• Right crude quality: The group predominantly produces medium sour crude, a staple feedstock for refineries worldwide.
• Proven compliance: OPEC+ has consistently demonstrated discipline in adhering to agreed production cuts.
• Managed unwind: Its policy of rolling cuts—set to taper gradually through 26 September—helps maintain a backwardated futures curve and discourages speculative storage.
• Integrated downstream assets: With sophisticated refineries online, OPEC+ can supply refined products while limiting crude exports – pressuring non-OPEC refinery margins and dampening crude price volatility.
• Strategic pricing philosophy: The group understands that aiming for ‘higher forever’ risks triggering a ‘lower for longer’ scenario. Price wars are off the table, and US shale is no longer viewed as a major disruptor.
• A stable vision: OPEC+ recognises that the future of oil pricing must be anchored in stability

Signals:

• Global crude and liquids balances are to tighten through the middle part of the year. The crude undersupply still exists and stocks will continue to be drawn.
• OPEC+ have focused on compliance and allowing members to loosen restrictions to award compliance. If members like Kazakhstan fail to compensate for past overproduction, it could lead to internal tensions.
• This supports the US administration’s goals of reducing oil prices and the price of products for consumers while raising output. This also gives a signal that the resolution of the Russia-Ukraine conflict is not in easily in sight, and even if it does happen, the Russian oil flows are unlikely to exceed OPEC+ mandated levels.
• The unwinding of multi-month supply increments from OPEC+ could enable the US to enact sanctions on Iran shortly, which would allow OPEC+ to fill the market loss of Iranian barrels and gain market share.
• Backwardation is set to remain wide as refinery demand grows, but the return of supply in future months suppresses the curve, reducing the incentive for storage.
• The supply challenge facing product markets in preparing for summer demand is eased by the increased availability of the right medium sour barrels.

Signposts:

• Bearish market signals assist macroeconomic headwinds that could reduce global demand growth
• Stricter compensation mechanisms if past overproduction is not offset.
• The key factor to watch is whether OPEC+ will bring more crude to market and, if so, will there be a cut in product exports from the region to counterbalance and arrest the continuous price slide.

 

 

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