Lagos — The oil market kicked off the week with notable turbulence, marked by a sharp correction in prices. The West Texas Intermediate (WTI) crude benchmark fell more than 5% at the open, trimming losses slightly to trade around $57 per barrel, a level not seen since approximately 2021. This move represents one of the steepest early-session drops observed recently.
The main catalyst behind this downward pressure was the latest announcement from the Organization of the Petroleum Exporting Countries and its allies (OPEC+). In its weekend meeting, the cartel decided to add 411,000 barrels per day (bpd) of output starting in June. This move accelerates the rollback of earlier production cuts, with 44% of initial cuts already reversed and a total of 960,000 bpd added between April and June.
The official justification from OPEC+ is based on the view of “healthy market fundamentals” and low inventory levels. However, this narrative is now under scrutiny. Recent data shows that while OECD inventories are below the five-year average, the gap (about 2.5%) does not necessarily suggest an imminent shortage, especially considering other signals from the broader global economic environment.
It is important to note that oil prices were already under pressure even before OPEC+’s announcement. The lingering uncertainty from global trade wars and doubts over their potential impact on global economic growth had already created a bearish backdrop. OPEC+’s decision to increase supply in this context has amplified fears of a potential oversupply.
The OPEC+ narrative of “healthy fundamentals” seems to contrast with signs of global economic slowdown and ongoing concerns about demand strength. This discrepancy adds a layer of complexity to the recent price decline.
Global demand concerns are further highlighted by developments in Asia, the largest oil-importing region. While Chinese imports spiked in March and April due to temporary factors such as strategic purchases from Iran and Russia, overall figures reflect underlying weakness. Seaborne imports in Asia during the first four months of 2025 are significantly lower than in the same period of 2024, suggesting a softer demand profile than OPEC+ might assume.
Additionally, U.S.-China trade tensions remain a critical factor. The possibility of continued tariffs, even in the event of a trade deal, could impact economic activity and hence energy demand from the world’s top importer. Even a U.S.-China trade agreement may not fully dispel demand concerns, given the potential impact of lingering tariffs on the top global consumer.
Looking ahead, the market will closely monitor the evolution of trade relations and key economic indicators, particularly those tied to manufacturing, industrial output, and global transport activity. As oil prices flirt with new lows, the combination of rising OPEC+ supply and persistent uncertainty over global demand strength suggests that volatility and downward pressure will likely continue to dominate market sentiment in the short term.”
- Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone
