Oil prices are falling due to a bearish mood caused by OPEC+’s production increase and concerns about demand. However, it is only temporary.
The oil markets have a bearish tilt after OPEC+’s announcement of the return of barrels in April. However, the expected supply loss from US President Trump’s tariffs and sanctions is not yet considered to be serious, given that the US administration has been flip-flopping.
The price drop will only be temporary, and OPEC+ is likely to take action as soon as crude time spreads are below $0.50 per barrel and the market begins flirting with contango.
Brent crude oil fell to a price of $69 a barrel for a brief period.
The factors that led to this decrease were a mixture.
OPEC decision has an impact on the crude market
The US tariffs imposed on Mexico and Canada were the main reason for the negative market sentiment.
The news sparked concern about possible trade disruptions, and the impact they could have on oil demand and global economic growth.
OPEC+ (Organisation of Petroleum Exporting Countries) as well as its members, collectively known by the acronym OPEC+ confirmed that they will increase their oil production beginning in April.
The announcement also contributed to the decline in oil prices as it is expected that an increase of supply will lead to a lower price, all other things being equal.
Barbara Lambrecht said that the commodity analyst of Commerzbank AG was quoted as saying: “OPEC+ does not seem willing to sacrifice market share in order to maintain price.”
According to Lambrecht, sources claim that the problem is also due to internal conflict, since Kazakhstan exceeded its February production goal by a significant amount.
The supply effect on the market is short-term and limited.
Crude oil prices remain high despite the suspension of tariffs
US tariffs originally scheduled to apply on Canadian and Mexican products have temporarily been suspended. This has led to a slight recovery of prices.
For a full month, starting on Thursday, goods from Canada and Mexico which comply with the US-Mexico-Canada Agreement are exempted from 25% tariffs.
Tariffs were in effect as of Tuesday.
Despite this, the price of crude oil continues to fall.
The retaliatory duties of Canada remain in force, while China will implement their retaliatory duties in the coming week.
The market feels the burden of an overhang in supply, as OPEC+ barrels are set to flood a system that is already well supplied, preventing any significant price recovery,” Sahdev said.
He said that the market is also influenced by news about increased flows coming from Kazakhstan and Iraq.
Overhang of supply
The world’s demand for crude oil is expected to be weaker with OPEC+ increasing production in April.
Lambrecht stated that the IEA will likely predict an even greater oversupply when it publishes its monthly report next Thursday.
Sahdev said that “OPEC+ has a strong belief in the demand staying steady, but adding oil to the market at this time risks further destabilizing the market and putting it into contango.”
According to the International Energy Agency, crude oil production from non-OPEC+ nations is expected to rise by 1,5 million barrels a week in 2025.
The IEA has estimated that the overall growth in demand for oil will be 1.1 million barrels aday this year.
Eight OPEC nations that have voluntarily decreased their oil output by 2.2 millions barrels per day since 2024, will begin to gradually increase their production in April.
This increase is 140,000 barrels a month and also includes an increase in production for United Arab Emirates.
Lambrecht stated that “this prospect puts considerable pressure on the oil price.”
Oil prices may rise
Sahdev stated that “while the delayed tariffs have provided a short sigh relief, the markets are still on a fine line between policy uncertainties and concerns over the supply of goods.”
The OPEC+ members states need to increase their revenue.
However, if supply exceeds demand, prices may decline. Rystad energy says that OPEC+ needs to maintain a delicate equilibrium to reach their revenue targets without causing any further price declines.
In the weeks to come, traders will be guided primarily by macroeconomic indicators, such as inflation rates, interest rate decisions and GDP growth worldwide.
Sahdev has been added to the list
While crude oil prices are still volatile, they may not stabilize until the demand increases or OPEC+ reins in production.
According to Commerzbank’s Lambrecht, the price of Brent crude is likely to rise in the second half of this year due to US sanctions against Iran.
Rystad believes that this strong negative sentiment is only temporary.
Rystad says that the refinery runs could grow by up to 3 million barrels a day from now until August.
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