Oil Prices Find Volatility Amid OPEC+ Adjustments and Trade Tensions

Oil prices edged higher this week on mixed signals from global markets, as OPEC+ countries hinted at production adjustments while trade disputes and economic uncertainties clouded demand outlooks. Brent crude settled at $66.91/barrel on April 25, up 1.19% from the previous day, while WTI rose to $63.18/barrel, reflecting a partial recovery after earlier declines. Yet the rally remained fragile, underscored by persistent risks from overproduction, geopolitical tensions, and the lingering effects of U.S.-China trade wars.

OPEC+ Output Decisions: A Delicate Balance

The April 3 OPEC+ meeting marked the start of a phased return of 2.2 million barrels per day (mb/d) of voluntary cuts, with a 411,000 barrels per day (kb/d) increase for May. While this move aimed to stabilize markets, compliance remains questionable. Countries like Kazakhstan, Iraq, and the UAE have already exceeded their quotas, with Kazakhstan’s output hitting a record 1.8 mb/d—390 kb/d above its limit. This overproduction risks undermining the group’s efforts to balance supply.

The cartel’s flexibility clause, allowing monthly reviews, signals its intent to adapt to market conditions. However, analysts warn that persistent overproduction could force OPEC+ to pause or reverse planned increases sooner than its 2026 deadline.

Trade Wars and Demand Uncertainties

The U.S.-China trade conflict has reached unprecedented levels, with tariffs now averaging 145% on Chinese imports and 125% reciprocally. These measures have dampened global demand expectations, with the IEA revising 2025 oil demand growth downward to 730 kb/d—a 300 kb/d cut from earlier forecasts.

Non-OPEC+ supply growth, meanwhile, continues to surge. Brazil, Guyana, and Canada are projected to add 1.3 mb/d this year, potentially outpacing demand if trade tensions persist. The U.S., however, faces headwinds: shale production growth was slashed by 150 kb/d to 490 kb/d due to tariff-driven cost increases for drilling equipment.

Geopolitical Risks Add to Volatility

Middle East supply disruptions—such as attacks near the Strait of Hormuz—and U.S.-Iran nuclear talks loom large. Any easing of sanctions on Iran could flood markets with an additional 1 mb/d of crude, further pressuring prices. Conversely, instability in the region keeps a floor under prices by highlighting supply risks.

Technical Outlook and Investment Implications

Prices remain range-bound between $60-$65/barrel, with resistance at $68/barrel. Key catalysts to watch include:
- May 5 OPEC+ meeting: Will the cartel stick to its 411 kb/d increase, or pause due to overproduction?
- U.S.-China trade talks: A 90-day tariff pause expires July 9; any escalation could trigger another price slump.
- U.S. recession risks: A 50% chance of a U.S. recession by early 2026 (as per IMF estimates) could further weaken demand.

Conclusion: A Delicate Dance Between Supply and Demand

Oil prices face a precarious path in the coming months. OPEC+’s output decisions, while well-intentioned, are hamstrung by non-compliance and external headwinds. Meanwhile, trade wars and macroeconomic slowdowns are eroding demand at a time when non-OPEC+ supply growth is accelerating.

The IEA’s 2025 price forecast of $68/barrel and 2026 projection of $61/barrel highlight an oversupply risk, but geopolitical instability and OPEC’s flexibility provide upside potential. Investors should remain cautious, hedging against volatility while monitoring compliance data and trade developments. In this environment, the old adage holds: “Oil markets are never dull—they’re either cheap, or they’re volatile.”