The Organization of the Petroleum Exporting Countries and allies’ decision to raise crude oil production from April seems more like a move to please US President Donald Trump.
The eight OPEC+ countries that voluntarily reduced their oil production levels had reached a consensus on Monday to gradually increase output and reverse these cuts starting from April, as previously outlined in their agreement.
This decision includes a production increase specifically granted to the United Arab Emirates. As a result of these combined increases, the total oil production from OPEC+ countries is projected to rise by 138,000 barrels per day in the upcoming month.
This increase in production could have implications for global oil prices, supply and demand dynamics, and the overall energy market.
Experts had expected the cartel to once again extend these cuts beyond the end of March. OPEC+ had extended oil output cuts multiple times last year due to poor demand outlook for the commodity.
Zain Vawda, market analyst at OANDA, said in a note:
Some including myself thought they might delay this increase toward the second half of 2025 at the earliest. The move is likely to please President Trump, who has been pushing OPEC to raise output.
Trump pressures OPEC
On January 23, Trump said he will pressure Saudi Arabia and OPEC to decrease oil prices.
Trump was addressing OPEC and other world leaders gathered in Davos on Thursday.
He urged Gulf nations to lower oil prices, stating that this could contribute to ending the Russian war in Ukraine.
“If the price came down, the Russia-Ukraine war would end immediately. Right now, the price is high enough that that war will continue – you got to bring down the oil price.”
“They should have done it long ago. They’re very responsible, actually, to a certain extent, for what’s taking place,” Trump added.
However, the oil market had expected OPEC to rollover the current output cuts as global prices have remained weak in the absence of meaningful demand growth.
An expected oversupply in the market had also led investors to believe that OPEC would have maintained the status quo.
“The increase is likely to make President Trump happy, given the pressure he’s been putting on OPEC to boost supply,” analysts at ING Group said.
Oil prices slump
Oil prices have continued to fall after OPEC agreed to go ahead with its planned output increase from April.
“Oil prices reacted to the announcement with significant losses, as the market had expected a further postponement of the production increase due to the too low price level from the perspective of the OPEC+ countries and the high level of uncertainty regarding the effects of tariffs and sanctions,” Carsten Fritsch, commodity analyst said.
Brent oil prices on the Intercontinental Exchange have fallen 4.7% since the close on Friday. Brent crude has also dipped below the $70 per barrel mark for the first time since September.
Source: OANDA
“The recent sell-off since oil peaked in mid-January has been relentless. Despite this, the daily MACD, while in negative territory, is still not what one would describe as oversold,” said David Morrison, senior market analyst at Trade Nation.
“This raises the possibility that there could be further price weakness.”
At the time of writing, the Brent crude oil on the Intercontinental Exchange was at $69.49 per barrel.
Oil oversupply
The current scenario in the oil market indicates an oversupply of crude oil in 2025.
The International Energy Agency has forecast that oil supply from countries outside of the OPEC+ alliance is likely to increase by 1.5 million barrels per day in 2025.
This is expected to outstrip demand growth for oil by more than 400,000 barrels a day, according to IEA.
With OPEC deciding to increase output from April, supply of oil is expected to rise further. This expectation has already weighed on oil prices.
Meanwhile, OPEC’s daily oil production increased by 320,000 barrels in February to 27.35 million barrels per day, according to a Bloomberg survey.
Iraq was responsible for most of the increase, raising output by 150,000 barrels per day to 4.16 million, exceeding its 4 million target.
Libya, Venezuela, and the UAE also increased production.
Deeper production cuts are expected to be implemented soon by countries that have overproduced in recent months to compensate for the deficit.
Even with these cuts, production is set to increase from April, affecting oil balances across the world as OPEC turns on the taps.
“With their decision, the OPEC+ countries are meeting the demands of US President Trump, who had called on OPEC to increase oil production,” Fritsch said.
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