Oil prices plunge as OPEC+ ramps up production amid Middle East tensions

[WORLD] Oil prices declined sharply in early Asian trading on Monday, falling more than $2 per barrel, as OPEC+ moves to ramp up production at a faster pace, triggering concerns about a growing supply surplus.

By 2240 GMT, Brent crude futures had dropped $2.04, or 3.33%, to $59.25 per barrel. U.S. West Texas Intermediate (WTI) crude was down $2.10, or 3.60%, trading at $56.19 per barrel. Both benchmarks opened at their lowest levels since April 9, following the alliance’s decision to raise output for a second month in a row.

The group announced it will boost production by 411,000 barrels per day (bpd) in June, bringing total increases across April, May, and June to 960,000 bpd. This marks a 44% reversal of the 2.2 million bpd in voluntary cuts enacted since 2022, according to Reuters estimates.

The move comes amid heightened concerns over weakening global demand, particularly from China. Recent data points to a slowdown in Chinese manufacturing and industrial output, raising alarms about a broader deceleration in the world’s second-largest economy. Analysts caution that persistent economic weakness in China could offset any upward price pressure from supply adjustments.

In the U.S., crude inventories have risen for three consecutive weeks, amplifying worries about a potential oversupply. The Energy Information Administration reported a larger-than-expected build of 3.2 million barrels last week, indicating sluggish fuel demand in the world's top oil consumer.

“The May 3 OPEC+ decision to increase quotas by another 411,000 bpd for June strengthens expectations that the global oil market is shifting into surplus,” said Tim Evans, founder of Evans on Energy, in a note to clients.

Sources within OPEC+ told Reuters the group could fully reverse voluntary cuts by the end of October if members fail to improve compliance with agreed production limits. Saudi Arabia is reportedly pressuring the coalition to speed up the rollback of output reductions, targeting countries like Iraq and Kazakhstan for repeated non-compliance.

Investors are also closely watching the U.S. Federal Reserve, as anticipated interest rate decisions could bolster the dollar. A stronger greenback typically makes oil more expensive for foreign buyers, exerting downward pressure on prices.

In response to the shifting supply landscape, Barclays has revised its Brent crude forecasts, lowering its 2025 projection by $4 to $66 per barrel, and its 2026 estimate by $2 to $60, citing the accelerated OPEC+ output schedule, according to analyst Amarpreet Singh.

Meanwhile, geopolitical tensions in the Middle East have escalated, with Israeli Prime Minister Benjamin Netanyahu vowing retaliation against Iran after a missile launched by the Tehran-backed Houthi group landed near Israel’s primary airport. However, these risks have so far failed to meaningfully lift oil prices, as traders focus on market fundamentals.

Iran’s Defense Minister Aziz Nasirzadeh warned on Sunday that Tehran would respond if attacked by either the U.S. or Israel, though analysts note that only a significant disruption to key energy routes is likely to shift the market's attention away from oversupply dynamics.