Oil Down 2% as OPEC+ Accelerates Output Hikes, Surplus Looms
3min read The global oil market is in turmoil after OPEC+ announced a dramatic acceleration of production increases in May 2025, sparking fears of a looming surplus and sending prices to four-year lows. Brent crude plunged to $59.95 per barrel, while wti dropped to $56.87, marking the lowest levels since 2021. The decision, which saw eight key OPEC+ members boost output by 411,000 barrels per day (bpd) in June alone, has reignited debates about the group’s ability to balance supply and demand in an increasingly volatile market.
The Policy Shift and Immediate Impact
OPEC+’s May meeting marked a sharp departure from its earlier cautious approach. Instead of incremental monthly increases of 137,000 bpd, the group front-loaded three such increments in June, effectively adding 411,000 bpd to global supplies. Combined with April and May hikes, this brought total output increases for the quarter to 960,000 bpd—a 44% unwinding of the 2.2 million bpd in voluntary cuts implemented since 2022. The move was justified as a “flexible response to market conditions,” but traders interpreted it as a preemptive strike against oversupply.
The immediate result was a collapse in prices. The U.S. Energy Information Administration (EIA) now projects a 0.6 million bpd surplus in Q2 2025, pushing Brent prices below $68/bbl for 2025—a $6 decline from earlier estimates—and as low as $61/bbl in 2026. Analysts at Barclays and ING have since slashed their forecasts, with Barclays predicting $66/bbl in 2025 and $60/bbl in 2026, while ING revised its 2025 average to $65/bbl.
Why the Surplus Feared?
The OPEC+ decision is just one piece of a larger puzzle. Three key factors are exacerbating surplus risks:
- Non-OPEC+ Supply Surge: The EIA forecasts a 1.5 million bpd rise in non-OPEC+ production in 2025, driven by U.S. shale, Brazilian offshore projects, and Guyana’s rapid output growth. U.S. output alone is expected to grow by 800,000 bpd, with the Permian Basin leading the charge.
- U.S. Trade Disruptions: New tariffs on Canadian and Mexican crude, effective April 2025, have disrupted 70% of U.S. oil imports, flooding non-U.S. markets with displaced crude. This has worsened oversupply in regions like Europe and Asia.
- Weaker Demand: The EIA downgraded global demand growth for 2025 to 1.3 million bpd, citing U.S.-China trade tensions, a slowdown in OECD consumption, and rising energy efficiency in industrial sectors.
Meanwhile, compliance risks are rising. Iraq and Kazakhstan have already exceeded their OPEC+ quotas this year, undermining supply discipline. Even Russia, under sanctions, has maintained exports at 9.08 million bpd, showing resilience.
The Contango Warning
Futures markets are sending a clear signal: the contango structure—where near-term contracts trade at a discount to later-dated ones—is now inverted, with later-dated Brent contracts trading 11 cents below front-month prices. This backwardation typically reflects immediate oversupply. Tim Evans ofnergy, a prominent analyst, noted, “The contango collapse underscores the market’s shift to a surplus. OPEC+’s acceleration is backfiring.”
Implications for Investors
The data paints a grim picture for oil bulls. With the EIA, Barclays, and ING all projecting sub-$70 prices through 2026, investors in energy equities face headwinds. The U.S. Oil Fund (USO), which tracks WTI prices, has lost 18% of its value since March 2025, while majors like ExxonMobil (XOM) and Chevron (CVX) have underperformed the S&P 500.
However, the OPEC+ meeting retains its flexibility clause, allowing members to pause or reverse hikes if prices drop too sharply. A coordinated cut in late 2025 could stabilize prices—but only if compliance improves and non-OPEC+ supply growth slows.
Conclusion
The OPEC+ decision in May 2025, intended to preemptively manage supply, has instead intensified surplus fears. With a projected 0.6 million bpd oversupply this quarter, prices are likely to remain depressed unless demand rebounds sharply or non-OPEC+ production curbs. Investors should prepare for prolonged volatility, with downside risks dominating until late 2025. As Barclays analysts starkly put it: “The oil market is now in a race between OPEC+ discipline and global oversupply—and oversupply is winning.”
For now, the writing is on the wall: oil’s golden era of high prices may be over, at least in the near term.
