From Supply Cuts to Oil Contango, OPEC+ Shifted Market Outlook

Crude oil prices have fallen more than 20% since the beginning of April, with mounting concerns over rising supply from OPEC and growing fears of a long-term supply surplus. Although the broader trends remain bearish, prices are ticking up today. WTI and Brent crude have both increased by over $1.50 to $58/bbl and $61/bbl, respectively.

At the heart of this price movement is OPEC+’s decision to accelerate the unwinding of voluntary production cuts. Over April, May, and June, the group plans to return nearly 1 Mbpd to the market—about 44% of the 2.2 Mbpd in cuts made since 2022. Another 411,000 bpd hike is anticipated in July, and the group may continue monthly increases into the fall if quota compliance from Iraq and Kazakhstan doesn’t improve. Even more suggestive, oil futures from October onward are now in a contango structure, where future contracts trade higher than near-term prices, signaling long-term oversupply concerns in the market.

Saudi Arabia appears to be driving this policy shift both to discipline non-compliant members and to assert market dominance around rising U.S. shale output. Despite the output hike, Saudi Arabia surprisingly raised its June crude prices for Asian buyers by 20 cents per barrel, adding complexity to its strategy.

While the OPEC+ narrative claims “healthy fundamentals,” analysts remain skeptical. Global inventories are only slightly below five-year averages, and Asian demand—especially from China—has been bolstered by short-term opportunistic buys, not structural growth. Rising trade tensions, particularly a 145% U.S. tariff on Chinese imports, are already dampening global shipping volumes and could further depress fuel demand through reduced road, air, and freight transport.

The U.S. economic picture is also mixed. While the ISM Services Index rose slightly above expectations, uncertainty around tariffs and monetary policy is clouding the outlook. Tariffs are also reducing shipping and air freight volumes, which in turn lowers fuel consumption across the transportation and logistics sectors—key drivers of oil demand.

Banks like Goldman Sachs, Barclays, and ING have all lowered their oil price forecasts. Goldman now expects Brent to average $60/bbl and WTI $56 for the rest of 2025, with possible lows in the high $40s if demand weakens further. Barclays also slashed its Brent projection for 2025 by $4/bbl to $66. Meanwhile, futures markets are reflecting this sentiment, with Brent’s forward curve flattening and dipping into contango territory—a signal of weaker near-term demand.

Even Russia is responding to the downturn, with reports suggesting it may alter its budgetary oil pricing formula due to falling revenues. Money managers, however, remain cautiously optimistic, increasing their net-long WTI positions to the highest level since January, indicating some expectation of a price rebound.