OIL Prices Plunges After OPEC+ Proliferates Production

Oil Prices plunge: Oil prices plunged 1 per cent on Monday after Organization of the Petroleum Exporting Countries (OPEC)+ decided upon fastening oil output hikes, leading to concerns about more supply coming into a market clouded by an uncertain demand outlook.

Brent crude futures dropped by 1.14 per cent to USD 60.59 a barrel by 1131 GMT, while the U.S West Texas Intermediate crude was at USD 57.54 a barrel. lower by 1.29 per cent.

The contracts pared losses after touching their lowest since April 9 at Monday's open, after OPEC+ agreed to accelerate oil production hikes for a second consecutive month, raising output in June by 4,11,000 barrels per day (bpd).

The June rise in output from the eight producers in the OPEC+ group will take the total combined hike for April, May and June to 9,60,000 barrels per day (bpd), representing a 44 per cent unwinding of the 2.2 million bpd of various cuts agreed on since 2022, according 

Reportedly, the group could fully unwind its voluntary cuts by October end if members are unable to enhance their compliance with production quotas.

Saudi Arabia backs surge in oil production

Meanwhile, reports are surfacing claiming that Saudi Arabia is backing acceleration of unwinding earlier output cuts to punish members Iraq, and Kazakhstan for poor compliance with their  production quotas.

It's expected that a rise in production instigated by Saudi Arabia could pose a challenge to the U.S shale supply as it is to penalize members that have benefited from higher prices, while flaunting their production limits.

The premium between the front-month Brent contract and that for delivery in six months was 22 cents a barrel, narrowing from 47 cents in the previous session. The spread had briefly flipped to a discount, known as a 'contango' structure, for the first time since December 2023 earlier in the session.

Barclays and ING have also lowered their Brent crude forecasts after the OPEC+ decision.

Barclays reduced its Brent forecast by $4 to $66 a barrel for 2025 and by $2 to $60 for 2026, while ING expects Brent to average $65 this year, down from $70 previously.

"The oil market has been dealing with significant demand uncertainty amid tariff risks. This change in OPEC+ policy adds to uncertainty on the supply side," ING analysts led by Warren Patterson said.

Meanwhile, recession fears and dip in refined fuel demand are also weighing on oil prices. Adding that since mid-February the data analytics firm had noted an approximate 150 million barrel build in global crude stocks in onshore tanks and on tankers at sea.