Oil Prices Sink After OPEC+ Agrees to Boost Production in June

Although oil prices are falling, one market analyst says the situation is “not bearish.”

U.S. crude oil prices fell more than 1% on May 5 after eight major energy producers agreed to accelerate production over the weekend.

The West Texas Intermid (WTI), a benchmark for US oil prices, fell 1.5% on the New York Mercantile Exchange, below $58 per barrel. U.S. oil prices have fallen 20% this year.

Brent, an international benchmark for oil prices, erased about 1.3% in London’s ice futures exchange to fall below one barrel. With each year, Brent prices have fallen by more than 19%.

Allies of OPEC+, an oil exporter’s organisation, agreed on May 3 to strengthen production at 411,000 barrels per day (BPD) in June. This is higher than the consensus forecast for the 140,000 bpd market.

In a statement following the virtual meeting, authorities said the “current healthy market foundation” facilitated the decision to adjust the output level.

“The gradual increase is subject to evolving market conditions,” OPEC said. “This flexibility allows the group to continue to support the stability of the oil market. Eight OPEC+ countries also noted that the measures provide opportunities for participating countries to accelerate compensation.”

Last month, eight OPEC+ members (Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia and the United Arab Emirates) announced that they would raise production levels to a comparable extent.

Industry observers saw the decision as a way to punish certain members for overproduction, and crude oil prices fell sharply.

“Remember that Saudi Arabia was doing heavy lifting to help the group achieve its goals – at some point (1 million barrels per day).

The group manages production every month and selects the July output level at its June 1st meeting.

It’s unclear how far the agency will go, especially as Saudi Arabia, requires around $90 per barrel to balance its budget.

“The key to knowing how far Saudi Arabia will take what is beginning to look like a price war is the country’s tolerance for low oil prices over time,” Patterson said in a May 3 memo.

“Saudi Arabia could lower its financial break-even by pumping more. Obviously, this will depend on how low-price transactions are in the rise in supply.”

Riyadh will need to cut or borrow expenditures from the capital markets to manage the growing gap between fiscal break-even and lower oil prices, he added.

However, according to Anas Alhajji, an energy economist at Energy Outlook Advisors, the situation could be “bearish than perception.”

“The impact is less bearish than what media and market participants perceive,” Alhajji said in his May 3 newsletter. “This will raise the ceiling of production and not necessarily produce. Raising the ceiling of production justifies overproduction already in the market. Supply to the international market (export) is significantly lower.”

Meanwhile, another challenge for the global energy market is to slow down China’s demand.

Pumpjack is operating on February 18, 2025 near the oil reserve in the Permian Basin oil field near Midland, Texas. Eli Hartman/Reuters

President Donald Trump’s aggressive tariff strategy is beginning to affect the world’s largest oil importers as factories are fighting.

“The number of GDP from China yesterday is very insufficient. Currently, the Chinese economy is effectively slowing here, as the estimated losses in employment growth for 5-10 million jobs is so large.

Latest developments have encouraged downward adjustments to price forecasts.

According to ING, Brent crude prices average $65 per barrel this year, starting from the previous estimate of $70 this year.

Goldman Sachs will project Brent crude oil an average of $60 per barrel for the remainder of 2025, and $56 per year. Both forecasts are down $2 from the bank’s previous forecast.

Impact on gasoline

The ongoing trend of low prices will provide further relief in terms of inflation, especially for drivers.

According to the American Automobile Association, the national average for gasoline gallons is nearly $3.17, down more than 14% from a year ago.

The stable slide eased annual headline inflation rates in the latest Consumer Price Index (CPI) report.

But despite a massive drop in crude prices, which accounts for about half of the price drivers at pumps, gasoline has not continued to follow the same accelerated downturn. Gas has risen 2 cents at retail level for a week ago.

Even at wholesale, gas has fallen 0.5% this year, trading at around $2 per gallon.

Trump recently said gasoline prices have “decreased to $1.98 in many states.” However, Gasbuddy data shows that the average gas price in Mississippi is around $2.62 per gallon.

“The summer travel season is pretty much here, and it’s pretty good news for our drivers. Over the past two weeks, the national average price for gas has reached $3.15 per gallon. In some states this week, the news remains positive, but in some states, rumors of $1.98 gas seem very optimistic.

“According to Gasbuddy data from over 150,000 fuel locations across the country, no stations offer prices under $2 per gallon this year.”

In its Short-Term Energy Outlook Report last month, the Energy Information Bureau predicted that the average gasoline retail price would be $3.10 in 2025 and 2026.