Oil Falls, Weighed by OPEC Decision to Proceed With Planned Output Increase

Oil prices have been on a downward trajectory, with the OPEC+ decision to proceed with a planned output increase weighing heavily on the market. The cartel, which includes Russia, agreed to add about 138,000 barrels per day (bpd) to its production plans beginning in April, marking a cautious step toward unwinding the 2.2 million bpd in cuts it has been clinging to since 2022. This move comes as U.S. President Donald Trump renews his calls for lower oil prices, pressuring Saudi Arabia and its allies to pump more. However, the decision to increase production has not been met with enthusiasm by the market, as oil prices continue to trade deep in the red.

The OPEC+ alliance, which includes Russia and other non-OPEC producers, has been nursing a production cut of 5.85 million bpd, about 5.7% of global supply, since 2022. The group's decision to delay the start of increasing oil production until April 2025, from January 2025, and extend the period in which it would unwind all these cuts until September 2026, has rekindled trader interest in the commodity. This move suggests that OPEC+ is aware of the potential market surplus and is taking a cautious approach to avoid overwhelming the market with excess supply.



However, the market's reaction to the OPEC+ decision has been mixed, with some analysts remaining bearish on oil prices. Citi, for example, expects a significant supply overhang, which has given the bank reason to remain bearish on oil. Morgan Stanley, on the other hand, has revised its 2025 outlook for Brent, revising the price forecast higher on the grounds that the delay in OPEC+ supply cut unwinding would result in a smaller than previously expected global overhang.

The OPEC+ decision to increase production has also raised concerns about the market share and profitability of its members, particularly Saudi Arabia and Russia. As the two largest producers in the cartel, their decisions will have a significant impact on the global oil market and their own profitability. Saudi Arabia, as the de facto leader of OPEC, has been cautious about increasing production too quickly, while Russia has been more eager to boost output. The gradual increase in production may allow both countries to balance their interests and maintain their profitability.

In conclusion, the OPEC+ decision to proceed with a planned output increase has weighed on oil prices, as the market grapples with the potential market surplus and geopolitical uncertainties. While some analysts remain bearish on oil prices, others see a potential opportunity in the delayed production increase. The market share and profitability of OPEC+ members, particularly Saudi Arabia and Russia, will be crucial factors in determining the future of the global oil market. As the cartel and its allies navigate the complex dynamics of the oil market, investors and traders will be closely watching the developments to make informed decisions about their portfolios.