COMMENTARY: OPEC+’s ‘Healthy’ Crude Oil Market Looks like Catching a Cold: Russell

If there is one thing that is almost certain in the current global crude oil market, it’s that the stated reasons for the OPEC+ group of exporters increasing supply are not the real reasons.The eight OPEC+ countries that are party to voluntary output cuts met on May 3 and decided to ease their curbs again for June, this time adding back 411,000 barrels per day (bpd).

The June hike will take the total combined increase for April, May and June to 960,000 bpd, representing a 44% unwinding of the 2.2 million bpd cut, according to Reuters calculations.

The eight said in a statement on the Organization of the Petroleum Exporting Countries (OPEC) website that the decision to lift output came amid the “current healthy market fundamentals as reflected in the low oil inventories.”

The problem for OPEC+ is that there is little evidence to support the assertion of healthy market fundamentals, and while visible crude inventories are slightly below five-year average levels, they are far from low enough to spark any concerns.

The OPEC monthly report for April showed that commercial crude inventories in developed economies in the Organisation for Economic Cooperation and Development were 2.746 billion barrels at the end of February, down 16.1 million barrels from the prior month and 71 million barrels below the five-year average.

In other words, OECD stocks were a mere 2.5% below the five-year average, which seems reasonable given the rising crude oil prices that prevailed between September and January and the rising risk of a global economic slowdown since the return of Donald Trump to the U.S. presidency.

China, the world’s biggest oil importer, doesn’t disclose its commercial or strategic inventories, but it’s likely that it significantly boosted storage flows in March, having drawn down slightly in the first two months of the year.

Calculations based on official data for imports, domestic output and refinery throughput showed a surplus of 1.74 million bpd in March as China imported considerably more crude than it processed into refined fuels.

With inventory levels not really an issue for the crude oil market, what can be made of OPEC+’s assertion of “healthy” fundamentals.

ASIA IMPORTS

The situation in Asia, the world’s biggest importing region and buyer of about 60% of global seaborne crude volumes, is instructive.

Asia’s seaborne imports recovered in March and April after a weak February, with commodity analysts Kpler showing arrivals of 25.27 million bpd and 25.28 million bpd respectively.

This was up from 23.31 million bpd in January and 23.94 million bpd in February.

However, for the first four months of 2025 Asia’s seaborne imports are still down 280,000 bpd from the same period in 2024, hardly suggestive of healthy demand.

It’s also the case that much of the increase in March and April was down to elevated imports by China, and those reflected temporary factors.

March arrivals were boosted by a sharp jump in imports from Iran as refiners stocked up on cheaper crude amid fears of increased U.S. sanctions on shipments from the Islamic Republic.

In April, China saw a rebound in imports from Russia, which had been softer in March amid tighter U.S. measures on vessels carrying Russian crude.

The outlook for crude demand is also somewhat mixed in coming months.

While May to July is traditionally a higher demand season amid summer construction and agriculture activity, there is an increasing likelihood that the trade war launched by Trump will start curbing oil demand.

The massive 145% tariff on imports from China is already reducing container shipping, and will likely affect air freight in coming weeks as well.

Lower shipping volumes will filter through to weaker road transport in both China and the United States, and faltering consumer confidence is likely to hurt air and road travel.

Even if trade tensions do ease, the slowdown in shipping is already locked in for the next few months and perhaps longer as it will take time for supply chains to recover or be re-worked.

So what is OPEC+ actually trying to achieve by lifting output?

There are several answers, and probably all hold some validity.

The group’s de facto leader Saudi Arabia may well be trying to encourage greater quote compliance from other members by forcing them to accept lower prices.

The Saudis may also be trying to go some way to meeting Trump’s demand for lower prices, which would help the U.S. leader fulfil a campaign promise of lower energy costs, although it would also come at the cost of hurting the U.S. oil industry that he promised to boost.

OPEC+ may also be trying to use low prices to limit oil output in other major producers, such as the United States and Brazil, given their higher cost of production.

The end result is that it’s hard to make anything other than a bearish case for oil prices, at least for the coming months, as more supply runs headlong into the rising likelihood of lower demand.

The early market assessment of the OPEC+ move bears this out, with Brent futures dropping as much as 3.7% in early Asian trade to a low of $58.50 a barrel, down from the close of $61.29 on May 2.

The views expressed here are those of the author, a columnist for Reuters.

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