OPEC+ navigating risky experiment by backtracking cuts / Rystad Energy oil market note

OPEC+ stands at a risky crossroads as the group experiments with bringing higher supply to market than previously announced, testing the market ahead of June.

Rystad Energy believes the group’s rescheduled meeting to 3 May signals their resolve to bring more barrels online with possible progress made on negotiations surrounding Kazakhstan. The price action is on the bearish side.

Balancing a flat price goal vs. time spreads is a tricky experiment

OPEC+ aims to keep the market in a backwardated state by extending cuts on a monthly basis while continuing to provide guidance for unwinding barrels in a tapered manner.

The majority of extension decisions so far have been preceded by the futures curve getting close to the contango break-out.

Global oil stocks remain low, below five-year averages, as the incentive to store barrels has been missing, except notably in China, which has increased storage irrespective of the market structure.

OPEC+ possibly recognizes that contango could incentivize higher hedging/structured financing into the US shale plays.

In the battle between storage tanks versus oil wells, OPEC+ appears intent on favoring production to ensure that oil wells, rather than storage tanks, meet future demand.

OPEC+ could potentially tolerate lower prices near $60 for a brief period as the market stays backwardated.

The current status is that dated vs. Brent Month 1 is already in mild contango, and the next few months’ backwardation has eroded significantly with contango from October onwards.

The low oil price can help support OPEC+ to drive higher compliance and compensatory cuts, helping front-month backwardation while higher supply ahead enables a rolling of the crude structure

Higher oil prices near $80 tend to result in production above quotas by many member states.

May to August fundamentals

The year-on-year growth analysis of fundamentals has become largely irrelevant in 2025, as it is no longer a typical year.

The US administration’s tariff and sanctions-driven approach has introduced certainty and disrupted the market.

With projections of GDP contraction and demand growth falling below 1 million barrels per day (bpd) in various estimates, it is difficult to rationalize an OPEC+ unwind, even with the current guidance indicating a surplus in oil balances this year.

However, when looking at the fundamentals from May to August, seasonal growth signals tighter balances heading into summer.

The key driver is stronger refinery runs growth of 2.0 million bpd compared to OPEC+ and lower non-OPEC+ supply growth.

The basis for stronger runs growth is that in such disruptive trade flows and higher freight, most countries would aim to run refining hard to cover the domestic shorts with extra cover to prevent price spikes from domestic shortages despite a bearish view of the demand.

The ability to cover imports could be challenged.

On the other hand, seasonal maintenance of non-OPEC+ countries, like Canada and Norway, allows OPEC+ to take opportunistic action to unwind until June.

Post-June-July, the non-OPEC+ supply coming stronger could put significant pressure on any unwind plans.

Middle East refined product exports push does not go hand in hand with crude cuts unwind

With the start-up of many new refineries in the Middle East, the product exports have increased by 1 million-1.5 million barrels per day compared to average 2019 levels.

Product exports have somewhat compensated for the cut in crude exports and loss of revenue via higher crude refining.

Unwinding crude cuts and pushing for higher product exports will also increase equivalent crude supply to a much higher level than demand, leading to lower oil prices and contango emerging.

This is an important aspect to watch.

Kazakhstan's pursuit of national interests over OPEC+ poses challenge for 3 May meeting

Kazakhstan has expressed its intention to prioritize national interests by indicating plans to increase supply, rather than aligning with OPEC+’s goal for members to remain within the quotas.

The presence of US companies like ExxonMobil and Chevron in Kazakhstan could play a key role in driving the supply growth.

This raises questions about the potential for US backing to pressure OPEC+ into adding more barrels to the market – a move the US has been advocating for some time.

OPEC+ has so far not yielded to these requests from Washington.

The true drivers behind Kazakhstan’s stance remain unclear.

However, a few key considerations as to why it may act against the OPEC+ agreed quotas include:

• The Tengiz expansion project, which reached full capacity in February 2025, is important for GDP growth and the fulfillment of the country's socio-economic development plans.
• Limiting production is a negative signal for foreign investment in the country, which is highly dependent on foreign investment to develop its economy.
• Increasing production at Tengiz is an important milestone for President Kassym-Jomart Tokayev, who assumed leadership in 2019 after nearly 30 years of Nursultan Nazarbayev’s presidency.

Conversely, there are also a number of considerations as to why Kazakhstan may stay aligned with OPEC+ and stick with the agreed quotas, including:

• Kazakhstan’s dependence on Russia for oil export logistics is significant, with nearly 95% of its oil exports going through Russia and no alternative redirection. OPEC+ could potentially affect Kazakhstan's production through Russia by threatening to close the CPC export terminal for long-term repairs.
• Gasification of the eastern and northern parts of Kazakhstan by importing Russian gas is a good project for a country that has problems meeting domestic growing demand for gas and energy. This project could potentially be part of OPEC+ and Russia's negotiation process with Kazakhstan.

Saudi Arabia's position to increase production and start a price war pose a risk to Kazakhstan's economy, which is highly sensitive to oil prices.

Saudi Official Selling Prices (OSPs)

In the last round of OSPs from Saudi Arabia, the signal to reduce by significant levels was clearly to incentivize Asian buyers to sustain runs despite bearish signals on demand.

Chinese state-owned refiners entered turnaround periods in April, continuing in May, which reduced demand.

However, the OSPs to Europe and the US remained high as OPEC+ calibrated a market movement of flows to put pressure on undersupplied markets.

In our latest OSP forecast, we have considered a $0.20 increase for Arab Light into Asia, partially mirroring how the Dubai structure has moved from last month to this month.

A ramp-up in refinery runs, driven by summer travel demand, will result in a call on high-quality crude with strong transport fuel yield.

This, coupled with the reduced flows from Venezuela due to the US import ban, supports OSPs as tightness ensues for the alternatives.

The move to potentially increase Asian OSPs highlights a commitment to provide crude to a market coming out of turnaround periods, which could export products to undersupplied regions. Keeping US and European OSPs high would also keep the Atlantic Basin short of medium sour crude.

Will disruptions in Iran, Venezuela and Russia create room for supply increases?

The US has been using sanctions on producers and tariffs on buyers as twin tools to erode the discounted barrel advantage that China’s crude imports have enjoyed so far. The approximate estimates indicate an advantage of near $4/bbl.

The sanctions and tariffs are more directed towards eroding China’s advantage and driving the sellers into a corner for better negotiations.

Assuming the strategy continues with even greater pressure, there could be room for higher barrels from the OPEC+ members.

In the latest news, there is a signal for secondary sanctions on buyers of Iranian oil as nuclear talks hit a snag.

The most important item to watch is where the oil supply gets taken out next as OPEC+ brings more. Venezuela's exports declined by 40% from March, as evident in the April data, due to US sanctions and tariffs on buyers.

Signposts:

• As of 25 April, the US strategic petroleum reserve (SPR) stands at 400 million barrels and has been filling at an average rate of 90,000 bpd since December 2023. The Biden administration purchased its last batch of oil for the SPR in November 2024. This volume is scheduled through May 2025. The current US administration has announced plans to refill the SPR, but to date, no purchase agreements have been executed. Unless a new contract is announced soon, the volume of crude oil flowing into the SPR will halt at the end of May, effectively adding this supply to the market.
• China-US trade talks remain pivotal to demand concerns. The fundamentals indicate that this could stay unresolved much longer, given the strength China has developed over the tariff years.
• With the US and Ukraine signing a mineral deal and the hardline stance towards Russia, it appears that sanctions on Russia will not be resolved any sooner.
• Three months after massive new sanctions against Russian oil exports, Russian oil loadings are finally signaling the sale of all barrels available for export, and even some reduction in inventories between 1 and 20 April.
• Based on OPEC+ decisions, Russia will increase production in May. Due to stockpiles and the expected reduction in refinery runs during the spring maintenance period, it can probably further raise oil shipments. Russian operators are also ramping up drilling, possibly signaling further acceleration of production growth by OPEC+.
• The cessation of drone attacks on Russian refineries allowed runs to increase by more than 200,000 bpd in April, compared to the February-March period. However, the ceasefire agreement has not yet been extended

The nuclear talks between the US and Iran seem to have hit a snag. Overall, a key goal for the US is to hit the crude discount advantage China gets, as almost all of the Iranian supply goes to China. There is unlikely to be higher Iran flows coming to market.