This follows the scheduled 135,000 barrels per day of oil production increase by the eight members of the OPEC+ group in April.
The OPEC-8, including Saudi Arabia and Russia have been adhering to a 2.2 million barrels per day of voluntary output cuts since 2024, and had decided to unwind these, starting this month.
The market was expecting a similar production increase in May as well, but OPEC had something else in store.
OPEC remains confident
“The decision signals OPEC+’s confidence in the market’s ability to absorb additional supply, though it introduces new complexities given persistent macroeconomic uncertainties, fluctuating demand signals and geopolitical risks,” Mukesh Sahdev, global head of commodities market, oil at Rystad Energy, said in an emailed commentary.
Rystad Energy’s earlier predictions indicated a strong possibility of an unwind due to the emerging demand-supply gap from March to August.
This was confirmed by OPEC+’s announcement on Thursday, which exceeded expectations.
Rystad Energy believes that OPEC could increase oil production further and accelerate the unwinding of the voluntary production cuts of 2.2 million barrels per day if US supply disruptions deepen.
The Norway-based energy intelligence company said the cartel has made an opportunistic move by boosting supply in May and capitalising on the expected stagnation in non-OPEC production.
Oil prices slump may be temporary
Sahdev said:
With potential supply disruptions stemming from sanctions and tariffs—on both sellers and buyers—oil prices are unlikely to stay below $70 for long.
“At the same time, there’s a clear signal from OPEC+ to uphold compliance and avoid a surplus that could threaten the market’s current backwardation structure,” Sahdev added.
By opting for an accelerated supply increase, OPEC+ is aiming to restore more barrels to the market at a time when crude prices have faced downward pressure.
The timing of this decision is noteworthy, as it comes after weeks of conflicting signals from the oil market.
Source: Rystad Energy
These mixed signals include increased production from non-OPEC+ countries (especially the US, Brazil, and Canada), the US trade war (sanctions and tariffs), lower-than-expected demand from China, the failed Russia- Ukraine ceasefire, and internal pressure from member OPEC states seeking higher production targets to match their new capacities.
According to Rystad, non-OPEC production is not expected to grow in May, which allows the cartel to add more barrels to the market during that period.
Furthermore, global crude and liquid balances are to tighten through the middle part of the year.
The crude undersupply still exists, and stocks will continue to be drawn, according to Rystad.
Lower prices stand in the way of US supply growth
The current slump in the West Texas Intermediate crude oil prices provides little opportunity for the US producers to increase drilling activity.
“If anything, we could see a further slowdown, particularly when you consider the backwardation in the market,” Warren Patterson, head of commodities strategy at ING Group, said in a report.
WTI, the benchmark US crude price, slumped 9% on Friday to a more than four-year low of $60.71 per barrel. Prices have slipped as US President Donald Trump’s reciprocal tariffs spooked investors.
The Dallas Fed Energy survey recently revealed that, on average, producers require a price of $65 per barrel to profitably drill a new well.
In contrast, the average price needed to cover the operating costs of an existing well is significantly lower, at $41 per barrel.
Patterson said:
However, given the large decline rates in US shale, it is more important to focus on new well costs.
Source: Rystad Energy
Current price levels mean it is unlikely that Trump is going to be successful in boosting domestic oil production. US oil producers are price sensitive.
“If Trump wants higher US oil production, we will need higher oil prices,” he added.
Slumping prices create a conundrum
Even as OPEC plans to bring back more barrels to the market, it must be noted that producers within the cartel won’t be content with oil prices hovering at multi-year lows.
Most producing countries within OPEC rely heavily on oil exports and want prices above $75-$80 a barrel.
“The group understands that aiming for ‘higher forever’ risks triggering a ‘lower for longer’ scenario,” Sahdev said.
“Price wars are off the table, and US shale is no longer viewed as a major disruptor.”
The volatility seen in oil markets on Friday works against OPEC’s philosophy as the cartel recognises that the future of pricing must be anchored in stability.
OPEC’s decision to increase production in May also presents a unique situation where it would be easier for the US to enact sanctions on Iran shortly.
This would allow the cartel to fill the gap in supply and gain market share.
However, Commerzbank AG’s commodity analyst, Carsten Fritsch, said:
The oversupply on the oil market is now likely to be larger in the second quarter, which speaks in favour of a lower oil price.
If global oil prices slip below $60 per barrel, it will be difficult for OPEC to continue with the plan announced on Thursday.
