MW A pivotal OPEC+ decision this weekend could tank crude-oil prices by 10%

By Myra P. Saefong

Oil producers face several challenges. Here's what's going on.

A decision by major oil producers this weekend could pull prices for crude down to their lowest levels since 2021, with demand tough to gauge against a trade-war backdrop and some countries failing to comply with output quotas.

Eight of the countries that make up the group known as OPEC+ - the Organization of the Petroleum Exporting Countries and its allies - are widely expected this weekend to announce a production increase of 411,000 barrels per day for July.

They face key challenges in their efforts to balance market share and oil prices, however - including accurately forecasting demand, and dealing with members who have an inconsistent track record when it comes to compliance with output quotas, said Violeta Todorova, senior research analyst at Leverage Shares, an exchange-traded product provider.

A decision to proceed with a hike of 411,000 barrels per day for July is a 'reasonable move under current conditions.' Violeta Todorova, Leverage Shares

At the moment, the oil market appears balanced and a decision to proceed with a hike of 411,000 barrels per day for July is a "reasonable move under current conditions," she said.

That said, "it is not without risks," added Todorova, particularly as U.S. benchmark West Texas Intermediate crude prices (CL.1) have recovered from the $55 lows seen in April, which were their lowest since February 2021. Prices remain "vulnerable to external shocks such as global economic uncertainty or geopolitical developments."

Officially, the eight OPEC+ members are scheduled to meet Sunday to decide on July production levels. Various news reports citing delegates, however, say the meeting was moved up by a day to Saturday. OPEC did not respond to an email from MarketWatch asking if there was a change in the date.

The eight OPEC+ members also held a meeting in early May a day earlier than originally planned. While the sources cited by news outlets recently have remained anonymous, their "collective message signals a strong internal consensus toward continuing the phased unwinding of earlier voluntary production cuts," said Todorova.

Several OPEC+ members implemented voluntary output cuts totaling 2.2 million barrels per day in January 2024 to help support stability and balance in the oil market. The group started to gradually phase out the cuts by increasing production in April of this year, then decided to increase production at a faster pace - by 411,000 barrels per day in May and by another 411,000 bpd in June, which was about three times faster than previously planned.

The unwind of OPEC+'s voluntary production cuts is likely due to its wish to "maintain flexibility amidst favorable market conditions," said Kenny Zhu, assistant vice president, energy and commodities research, at Global X. Global crude-oil inventories remained near four-year lows through much of the first quarter of this year and near-term economic fundamentals have remained "largely intact despite bearish outlooks from experts," he said.

OPEC+ may also want to defend market share "within and abroad," as the share of global oil production among members of OPEC has nearly halved over the past decade, Zhu said, as the U.S. has become the world's largest oil producer. Within OPEC+, key member Saudi Arabia has "expressed frustration" with other member countries, including Iraq and Kazakhstan, who have not fully complied with production quotas, he noted.

Zhu said he doesn't expect the outcome of this weekend's OPEC+ meeting will lead to any major market reaction, assuming an increase of 411,000 bpd is announced as expected.

However, the group's plan to increase market share without significantly lowering crude prices would require strict compliance from all participating members, said Todorova. Historically, countries such as Russia, Iraq, and Kazakhstan have struggled to adhere fully to production quotas, and additional supply from these members could outpace actual demand, leading to renewed downward pressure on oil prices, she said.

Trying to accurately forecast demand poses another challenge, Todorova added, especially amid a global economy that continues to "face headwinds from inflation, trade-war uncertainties, geopolitical tensions and changes in energy policy" - all of which have rocked financial markets.

Read: Here's what investors should do as courts deliberate the future of Trump's tariffs

U.S. benchmark stock indexes traded lower Friday after President Donald Trump, in a social-media post, accused China of not living up to an agreement that saw Washington and Beijing mutually slash tariffs on each other earlier this month.

Oil prices also declined Friday, but were on track to post a gain for the month of May. The front-month July WTI crude contract (CLN25) traded at $60.29 a barrel, poised for a monthly rise of 3.6%, according to Dow Jones Market Data. Global benchmark Brent crude for July delivery (BRNN25) was at $63.79, up 1.1% for the month.

Still, the recent drop in WTI prices to a range of between $55 and $64 is no longer profitable for many companies to drill new wells, said Todorova, as most fracking operations require prices between $61 and $70 a barrel to justify expanding production.

U.S. producers have already begun scaling back, with the total number of U.S. onshore drilling rigs falling to the lowest since November 2021, she noted.

A slowdown in U.S. oil production will influence the global supply picture, said Todorova, but crude prices will depend on the strength of demand over the coming quarters. If demand remains robust, the production pullback could support prices; if demand weakens, the market may continue to feel oversupplied despite the production slowdown, she said.

If OPEC+ output rises as expected, Todorova believes WTI prices could decline to $53 to $55 a barrel, while Brent could fall to $56 to $58 - marking declines of roughly 10% from current levels. If output hikes are delayed or scaled back, oil prices may rise to $65 to $67 for WTI and to $68 to $70 for Brent, she said.

-Myra P. Saefong

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May 30, 2025 13:19 ET (17:19 GMT)

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