Oil Prices Plunge Ahead of OPEC+ Meeting: Supply Hike Looms as Demand Concerns Mount

Crude oil prices have entered a steep decline in early May 2025, with Brent crude dipping below $60 per barrel—the lowest level in over four years—as investors brace for an OPEC+ meeting expected to approve a production increase. The group’s decision to accelerate output hikes, combined with weak demand signals and geopolitical risks, has intensified fears of a prolonged oversupply.

The OPEC+ Supply Decision: A Catalyst for Volatility

OPEC+ members are set to finalize a production increase of 411,000 barrels per day (bpd) at their May 5 meeting, accelerating the unwinding of voluntary cuts implemented since late 2023. However, the actual supply boost may be muted due to chronic overproduction by key members. For instance, Kazakhstan is already producing 390,000 bpd above its quota, while Iraq and the UAE exceed their targets by 440,000 bpd and 350,000 bpd, respectively. This non-compliance could limit the net impact of the announced hike, though traders remain wary of the symbolic shift toward prioritizing market share over price stability.

Demand Weakness and Macroeconomic Headwinds

The demand outlook has darkened amid escalating trade tensions and a slowing global economy. The International Energy Agency (IEA) revised its 2025 demand growth forecast downward by 400,000 bpd to just 730,000 bpd**, citing U.S.-China trade disputes and recession risks. The U.S. economy contracted in Q1 2025 for the first time since 2022, while China’s factory activity slumped into its worst contraction since December 2023. These trends have amplified concerns that weak demand will outweigh any supply adjustments.

Meanwhile, U.S. shale producers face headwinds. Despite rising to 13.3 million bpd in Q1 2025, output growth is slowing as firms require a breakeven price of $65/bbl—well above current levels. New tariffs on steel and equipment are further squeezing margins, with 2025 supply growth now projected at just 280,000 bpd, down from earlier estimates.

Geopolitical Risks and the Shadow of Sanctions

While geopolitical tensions in the Middle East—such as Iran-Israel hostilities—add a $5–15/bbl risk premium, these concerns are outweighed by OPEC+’s supply policies. Sanctions on Russia and Iran have reduced their exports by 1.8 million bpd, but shadow fleets and discounted crude continue to flood markets. For example, Russian Urals crude trades at a $10 discount to Brent, undermining price recovery efforts.

The Long Game: Oversupply Risks Beyond 2025

Even if OPEC+ sticks to its plan, non-OPEC+ supply growth is set to outpace demand. The IEA forecasts 920,000 bpd of non-OPEC+ growth in 2026, driven by Brazil, Guyana, and Canada, while demand growth slows to 690,000 bpd. EV adoption is displacing 1.2 million bpd of oil demand annually, a trend that will accelerate as the EU’s carbon pricing ($100/ton) and green hydrogen subsidies squeeze traditional fuels.

Conclusion: A Volatile Outlook Demands Caution

The May 2025 OPEC+ meeting is a pivotal moment for oil markets, but prices are unlikely to stabilize soon. Key risks include:
- Non-compliance: Overproducing members could negate the announced supply increase, keeping prices depressed.
- Demand Slump: Trade wars and recession fears could push prices below $60/bbl for months.
- Geopolitical Flare-ups: Middle East conflicts or Red Sea attacks could briefly lift prices but are unlikely to offset structural oversupply.

Investors should monitor compliance rates and U.S. shale rig counts closely. The $60–$70/bbl range is likely to dominate until late 2025, with downside risks if OPEC+ fails to rein in overproduction. As one analyst noted, “This isn’t just a price war—it’s a strategic reset for OPEC+.”

In this environment, cautious positioning is critical. Short-term traders might benefit from volatility, but long-term investors should focus on resilience in energy companies with low breakeven costs and exposure to high-margin segments like petrochemicals or renewables. The era of $80+ oil is on hold—until demand recovers or OPEC+ finally achieves unity.