Saudi Arabia's "patience" has run out, OPEC+ unexpectedly increases production, shocking the market, Wall Street lowers oil price expectations

OPEC+, which has always been a staunch defender of high oil prices, unexpectedly decided to significantly increase production in May, leading to a sharp drop in oil prices and new market turmoil for investors.

According to a statement released by OPEC on April 3rd, the OPEC+ organization agreed to increase oil supply to the market by 411,000 barrels per day in May, three times the original plan. Representatives at the meeting revealed that this move aims to "punish" those violators by lowering oil prices.

Saudi Energy Minister Prince Abdulaziz bin Salman has run out of patience. Previously, Kazakhstan and Iraq had long been overproducing, which greatly displeased Saudi Arabia. According to representatives at the meeting, the prince stated that if these countries do not improve their performance, the unexpected increase in production in May is merely an "appetizer."

This action marks the increasing pressure OPEC+ faces in balancing the global oil market, further compounded by the trade tariffs announced by Trump, which have already impacted the crude oil market. Brent crude futures once plummeted by 7.3%, marking the largest drop in two years. As of the time of writing, Brent crude has fallen to $69 per barrel.

Goldman Sachs lowered its oil price forecast following the sharp decline, reducing its December Brent crude price prediction by $5 to $66 per barrel. Analysts, including Daan Struyven, stated in a report that oil price volatility "may also remain high due to rising recession risks." Citigroup and JPMorgan Chase predict that crude oil prices will eventually fall to around $60 per barrel.

Under Geopolitical Pressure, Saudi Arabia's "Patience" Runs Out

The timing of OPEC's announcement seems to be no coincidence, as the market widely speculates that Riyadh intends to amplify its impact on oil prices. Helima Croft, head of commodity strategy at RBC Capital, stated that this move is intended to send a warning to Kazakhstan, Iraq, and even Russia, reminding them of the costs of continued overproduction.

Kazakhstan has angered Saudi Arabia by significantly increasing production in its giant Tengiz oil field's new projects. Although Kazakhstan has promised to better adhere to OPEC+ production limits, its February output was still 300,000 barrels per day above the target. Iraq is another country that frequently violates agreements; although its production has been closer to quotas in recent months, it has not fulfilled its promise to compensate for past overproduction.

While representatives were surprised by the outcome of the meeting, they supported measures to end violations and backed the proposal for a significant increase in production in May put forth by Saudi Arabia and Russia. Bob McNally, president of Rapidan Energy Advisors LLC, believes this move aims to encourage Kazakhstan and Iraq to improve their compliance in a balanced manner In addition, some analysts speculate that Saudi Arabia and Russia may hope to curry favor with the U.S. President, who has urged OPEC to lower oil prices. The increase in production by OPEC+ also helps Trump fulfill his promise to cut Iran's oil exports.

Wall Street Lowers Oil Price Expectations

Key oil indicators are signaling a loosening supply.

As of Thursday's close, the global benchmark Brent crude's term structure has generally narrowed, with the decline in long-term futures particularly notable. For example, the spread between the near-month and fourth-month contracts saw its spot premium (i.e., the price of crude oil for near-month delivery is higher than that for far-month delivery) close at $1.84 per barrel, down from $2.16 the previous day. The spot premium for the six-month spread was $2.80 per barrel on Thursday, compared to $3.53 on Wednesday.

The trend for forward contracts is similar, with the one-year spread and the December-December spread (both important indicators of long-term supply-demand balance) also showing declines.

As additional oil from OPEC+ begins to enter the market, oil prices may face greater downward pressure. Goldman Sachs has lowered its oil price expectations following the sharp drop in prices, reducing its December Brent crude price forecast by $5 per barrel to $66 per barrel. Goldman Sachs stated in its report:

"Given the rising risk of economic recession and the possibility that OPEC+ may further increase supply, our revised oil price forecast still carries downside risks, particularly for the 2026 forecast."

Citigroup and JPMorgan Chase predict that crude oil prices will eventually fall to around $60 per barrel.

Norbert Ruecker, the head of economics at Julius Baer & Co. Ltd., stated that in light of the near stagnation of oil demand this year, the outlook for oversupply is becoming more severe