Oil prices may have no relief from further downside in the second half of 2025, with increased supply from the Organization of the Petroleum Exporting Countries and allies flooding the market.
Saudi Arabia, the kingpin of OPEC+, appears to have run out of patience after months of broken promises, according to Carsten Fritsch, commodity analyst at Commerzbank AG.
Saudi Arabia reportedly indicated in talks with allies and industry experts last week that it no longer wants to prop up oil prices with continued production cuts.
Saudi Arabia stated its preparedness for an extended duration of low oil prices.
This culminated in decisions to hike production substantially in both May and June by the eight members of the OPEC+ alliance.
The eight members include Saudi Arabia, Russia, Iraq, Kazakhstan, Algeria, Oman, Kuwait, and the UAE.
Oil prices came under significant pressure at the start of the week, after having already lost around 8% in the previous week and thus recording the sharpest weekly declines in more than a month.
Contracts and curves
At the start of the week, Brent crude on the Intercontinental Exchange fell below $60 a barrel briefly.
This brought the price back close to the four and a half year low recorded a month ago.
The price is currently around $61 per barrel.
“At the same time, the backwardation in the crude oil forward curves flattened further at the front end,” Fritsch said.
Warren Patterson, head of commodities strategy at ING Group, said in a report:
Larger supply increases mean that more of the Brent forward curve should trade in contango, particularly towards the front end of the curve.
The forward curve had been trading in backwardation through the end of this year.
The fall in prices and changes in forward curves resulted from a decision by eight OPEC+ nations to boost oil production in June by an additional 411,000 barrels per day.
Source: Commerzbank Research
Instead of gradually increasing production over three months as planned in May, the increases will now be implemented all at once.
Risk of further output increases
Further substantial production increases by OPEC are possible in the near future, according to a Reuters report.
The report indicated that the 2.2 million barrels per day in voluntary production cuts from eight countries might be entirely offset by October or November if some nations fail to maintain production discipline.
Saudi Arabia is likely increasingly dissatisfied because some countries, notably Kazakhstan and Iraq, have not fully implemented the agreed-upon production cuts.
Recently, two nations have consistently exceeded their agreed production quotas and have either failed to implement promised cuts or have only partially done so.
This lack of adherence prevents compensation for previous overproduction.
“These more aggressive supply hikes from OPEC+ mean that the oil surplus will be brought forward, leaving the market in surplus throughout 2025,” Patterson said.
Actual production increase in May and June is expected to be lower
Almost 1 million additional barrels of oil per day are projected to enter the market during the second quarter due to the reversal of voluntary production cuts in April and May, and the recently announced plans for June.
“The actual increase in supply is likely to be lower because Kazakhstan is already producing 300-350 thousand barrels per day more than the upwardly adjusted OPEC+ production plan for June,” Fritsch said.
Both Iraq and the United Arab Emirates possess limited capacity for increased oil production.
Source: Commerzbank Research
Furthermore, Iraq will be required to implement additional production cuts in the near future to account for previously planned compensatory reductions, according to Fritsch.
Comparing the March oil production of eight countries with their agreed June production volumes, OPEC’s monthly report suggests a potential increase of just under 600,000 barrels per day in total.
The IEA’s monthly report provides similar figures.
By Commerzbank’s assessment, March production figures appear inflated, suggesting a necessary reduction of 275,000 barrels daily.
Consequently, the anticipated production increase in June would be significantly less substantial.
Uncertainty with output volumes
Saudi Arabia’s threat to further increase oil production in the coming months will likely intensify pressure on Iraq and Kazakhstan to adhere to agreed production volumes.
The main uncertainty is whether the remaining nations will act similarly.
OPEC member Iraq’s state marketing company, which reports to the oil ministry, makes this easier to implement.
More than two years ago, a legal dispute resulted in the shutdown of an oil pipeline in northern Iraq.
Conversely, securing an agreement with international oil companies operating in Kazakhstan is proving to be a significantly more challenging endeavor.
Kazakhstan’s continued violation of the OPEC+ agreement could lead to discussions about its continued membership in the group, according to Commerzbank.
“However, the country could also follow the example of Mexico, which has only been a passive OPEC+ member for almost five years without being bound by production targets,” Fritsch said.
Prices to remain in a lower band
OPEC+ countries are projected to increase their oil production by 600,000 to 900,000 barrels per day between now and June. This estimated rise represents the actual increase from the eight participating nations, according to Commerzbank.
“This would be sufficient for the oil market to show a considerable oversupply in the second quarter,” Fritsch said.
An even larger oversupply of oil is anticipated in subsequent quarters if rumored production increases persist into autumn.
This is particularly concerning given that demand is expected to decrease due to the tariff conflict initiated by US President Donald Trump.
“Saudi also appears to be working with the Trump administration to keep downward pressure on the oil price,” said David Morrison, senior market analyst at Trade Nation.
Commerzbank’s Fritsch noted:
We therefore see downside risks to our oil price forecast for Brent of USD 65 per barrel in the second half of the year.
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