MW OPEC+ crashed oil prices by hiking output in April. Here's why they could do it again.

By Myra P. Saefong

Oil prices are on track to mark their biggest monthly losses since November 2021

OPEC+ shocked the market earlier this month with plans to ramp up crude output, setting up oil prices for their worst monthly performance in years. Now the group of oil producers might add even more barrels.

Raising supplies at time when President Donald Trump's changing policies on tariffs have shaken the outlook for the economy and energy demand seems a bit counterintuitive. But in some ways would make sense, as the Organization of the Petroleum Exporting Countries and its allies look to maximize revenue, and as cooling demand for energy starts to rise in May, analysts said.

OPEC+'s "adjustment" of 411,000 barrels per day for May - increasing oil output by three times more than previously planned for that month - helped pull U.S. benchmark oil prices (CL.1) down to $59.58 a barrel on April 8, the lowest settlement for a front-month contract in about four years, according to Dow Jones Market Data. The news had come on the heels of Trump's April 2 announcement of larger-than-expected U.S. tariffs on foreign imports, which were then mostly postponed.

"Oil prices cratered in early April after President Trump implemented, then paused, some tariffs," said Patrick De Haan, head of petroleum analysis at GasBuddy.

The good news for consumers is that lower oil prices will "help lead to some disinflation" when it comes to gasoline, diesel and jet fuel, he said. The bad news is that lower oil prices are a "sign of an uncertain future."

U.S. benchmark oil prices (CL.1) have fallen 15.5% this month, poised for their biggest monthly loss since November 2021, just as some members of OPEC+ are set to meet Monday to decide on production levels for June.

"The market is getting tugged between a possible tariff-derived recession, fluctuating expectations about negotiations between the U.S. and Iran, and the Ukrainian talks, either one of which might lead to increased supplies, plus the apparent moves by OPEC+ to unwind quotas in a weak market," said Michael Lynch, president at Strategic Energy & Economic Research.

"The demand weakness stemming from tariffs (real and threatened) should continue, since it seems that there won't be major relief soon and the July imposition of reciprocal tariffs will loom over the oil market like the Sword of Damocles," he said.

The bottom for oil prices won't likely be reached until 'sanctions are clearly not going to be relaxed, Trump abandons tariff-led economic policy, and Kazakhstan, Iraq and the United Arab Emirates cut oil production.' Michael Lynch, Strategic Energy & Economic Research

The bottom for oil prices won't likely be reached until Trump abandons his tariff-led economic policy, and Kazakhstan, Iraq and the United Arab Emirates cut oil production, said Lynch, who added that sanctions against certain countries would also have to be relaxed, which they "are clearly not going to be."

Political move?

Anas Alhajji, an independent energy expert and managing partner at Energy Outlook Advisors, said there is speculation that the decision by the "V8" to boost production in May was political - in order to "appease" Trump and avoid tariffs.

The V8 refers to the eight countries within OPEC+ who previously agreed to make voluntary output cuts: Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman. These countries will decide on June output levels Monday.

If the May production increase was political, the goal is clear, Alhajji said. "As Trump visits Saudi Arabia, Qatar and the UAE next month, they want oil to be a non-issue."

The same applies if Russian President Vladimir Putin meets Trump in Riyadh, he said. "They aim to focus on critical issues like the wars in Gaza, Yemen, Ukraine and Sudan. They want to focus on Iran, Palestine's future and Red Sea shipping."

"Raising oil production to lower prices and shift focus to these issues is strategic and smart," he said. "If the decision to increase production is political, we may see smaller, or no, increases in production after June."

But for the month of June, he said "accelerated unwinding of voluntary production cuts are expected to continue."

OPEC+ production boost?

There are a number of reasons why production increases actually make sense.

Alhajji pointed out that OPEC+ countries are expected to see rising domestic oil consumption in May because of increased cooling demand, which boosts electricity needs.

Power plants burn more oil from May to September, he said.

Meanwhile, in a recent note, strategists at J.P. Morgan pointed out that Brent price reactions to 1 million barrels per day in supply reductions have been "diminishing." J.P. Morgan's analysis indicated that a 1 million-bpd supply cut previously resulted in a $20 price reaction in 2022, $10 in 2023, $8 in 2024 and only $4 in 2025.

Brent oil futures (BRNM25) were down 14% month to date as of Tuesday, on track for their biggest monthly loss since November 2021. The June contract settled Tuesday at $64.25 a barrel.

"Given our outlook for $60 Brent in 2026, we concluded that the optimal strategy for oil-producing [countries] would be to increase supply to maximize revenue," the strategists said.

So there's an "elevated probability" that Saudi Arabia and other countries that previously agreed to make voluntary output cuts might "opt to accelerate planned supply increases" at the upcoming May 5 meeting, potentially announcing an additional announce an additional 400,000 bpd for June, the J.P. Morgan strategists said.

OPEC+ has already been ramping up production slightly faster than anticipated, and the "potential for the group to increase output again is certainly giving the bears, who are already aggressively selling the market on economic risk from tariffs, a reason" to push prices even lower, Gary Cunningham, director of market research at Tradition Energy, told MarketWatch.

Even so, he believes OPEC+ will agree to another increase, "albeit slight, to appease some of the nations which are facing economic difficulties due to trade restrictions and inflation."

"It will be interesting to see if this move by OPEC to regain market share at the expense of price leads to an overall retraction in non-OPEC output, or if Chinese petroleum demands can support the increasing output," said Cunningham.

OPEC+ may also see production increases as a way to improve output compliance among its members - as odd as that may seem.

Several OPEC+ members, such as Kazakhstan, Iraq and Russia, have been producing oil volumes in excess of their previously agreed-upon targets, said Rob Thummel, senior portfolio manager at Tortoise Capital.

In response, OPEC+ decided to lift production more than expected in May to "encourage compliance with established production agreements," he told MarketWatch. If the overproducing countries reduce their output to the agreed-upon levels, the "excess supply added to the market could be absorbed, leading to a more balanced global oil market."

That plan could backfire, however, because if "noncompliance persists, the resulting oversupply will likely put downward pressure on oil prices," said Thummel.

-Myra P. Saefong

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April 30, 2025 07:15 ET (11:15 GMT)

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