OPEC+ Decision to Increase Oil Production Raises Questions Amid Market Uncertainty

Clyde Russell, Reuters

LAUNCESTON, Australia
EnergiesNet.com 03 05 2025

The OPEC+ group of crude oil exporters justified their decision to increase production by pointing to “the healthy market fundamentals and the positive market outlook.”

They must be looking at a completely different market to the rest of us.

OPEC+, which includes the Organization of the Petroleum Exporting Countries, plus Russia and other allies, said in a statement on Monday that it will go ahead with a planned output increase in April.

The volume of oil to be added back in is 138,000 barrels per day (bpd), according to Reuters calculations.

In other words, not really enough to make much of a difference to global supply, but more than enough to impact investor sentiment.

The immediate reaction was bearish, with global benchmark Brent futures dropping 2.2% to end at $71.59 a barrel, the lowest close in three months.

It’s hard to take OPEC+ at their word, given the current state of the crude oil market looks anything but healthy.

Asia, the top-importing region, saw arrivals drop by 780,000 bpd in the first two months of 2025 compared with the same period last year, according to data compiled by LSEG Oil Research.

Asia imported 26.17 million bpd in the January-February period, which is down about 3% from the 26.96 million in the same period in 2024.

Asia represents about 60% of global seaborne crude oil imports, giving the continent an outsized role in determining demand and prices.

But even outside of Asia, the oil market looks far from healthy.

Seaborne imports in the Europe, Middle East and Africa (EMEA) region dropped to 9.1 million bpd in the week ending February 21, according to LSEG, down from 12.8 million bpd the prior week.

EMEA seaborne arrivals were 14.2 million bpd in January, meaning they dropped off significantly in February.

U.S. crude imports held up better, but were still down 490,000 bpd, or 8%, to 5.82 million bpd in the week to February 21, compared with the prior week.

Investors are also turning increasingly bearish on crude, with money managers last week cutting net long U.S. crude futures and options on the New York Mercantile Exchange and Intercontinental Exchange to their lowest level since hitting a record low in December 2023.

The bearish mood in crude oil markets is likely to be exacerbated by U.S. President Donald Trump saying that his 25% tariffs on imports from Mexico and Canada will go ahead as of Tuesday.

Imports of Canadian crude will be hit with a lower tariff of 10%, but even this may prove significant given Canada currently supplies more than 4 million bpd to the United States, which is about 60% of total imports.

The question will be whether Canadian exporters are forced to discount or whether their U.S. refinery customers will be compelled to pay the tariff.

While Canadian exporters have very limited options to ship their crude elsewhere, it’s also the case that the U.S. refiners that buy it will have difficulty in sourcing and transporting the same type of heavy crude from other suppliers.

TRUMP EFFECT

The likely disruption to crude markets from Trump’s latest round of tariffs, and the inevitable retaliation, may also provide some insight into OPEC+’s decision to raise its oil output modestly in April.

It’s safe to say the stated reason is not the actual reason, but OPEC+ may have been trying to get ahead of the Trump effect.

By raising output the group can be seen to be meeting one of Trump’s key demands, namely that it pumps more in order to lower global crude prices.

OPEC+ is also giving itself some wiggle room should some of the bullish impacts of Trump’s actions come to the fore.

Chief among them is his plan to dramatically cut exports from Iran and Venezuela, which would tighten crude markets, especially in Asia, where China, the world’s biggest oil importer, is effectively the only customer for Iran.

OPEC+ may also be taking the view that the conflict between Russia and Ukraine is likely to worsen rather than be resolved, especially given the seeming breakdown in relations between Trump and Ukraine President Volodymyr Zelenskiy.

The oil market impact of this is yet to be determined, as it appears Trump may want to ease sanctions on Russia, moves likely to be strongly opposed by Ukraine’s European allies.

Another factor for OPEC+ is that the group may have become weary of giving up market share to exporters like Brazil and the United States. Also, if prices are heading lower anyway because of global geopolitical and economic uncertainty, then OPEC+ may as well grab a higher market share.

The views expressed here are those of the author, a columnist for Reuters.

Editing by Sam Holmes

reuters.com 03 04 2025