Crude oil's worst month since 2021 as likely OPEC+ production hike, demand worries weigh

An anticipated decision by OPEC+ to increase production in May is further putting pressure on crude oil prices.

Crude oil posted its worst month in nearly 3-1/2 years as Saudi Arabia, the largest exporter in the OPEC+ bloc, hinted at increasing production and handling lower prices for a longer period as weak global demand continues to cloud the demand outlook.

Oil prices fell 16 percent in April as Reuters reported that Saudi Arabia hinted being unwilling to support the oil market with more supply cuts. This may imply the OPEC+ bloc leader could consider ramping up oil production to expand market share, which would be a major change in its policy, which for past five years has been trying to balance the market through its output cuts.

Already, as many as eight OPEC+ nations have agreed to advance phasing out of output cuts by ramping up output in May, which has partly triggered the sharp cooloff in oil prices to below $60 per barrel, a four-year low in April. The cartel is slated to meet on May 5 to consider output hike, and Reuters reported citing people familiar with the development that several OPEC+ members may back a production ramp up in June.

"It raises concern that we could be headed towards another production war," Reuters quoted Phil Flynn, senior analyst with Price Futures Group.

The sharp slump in international oil prices would favour of India, as it may ease inflationary pressures and reducing the country's energy import bill, experts have told Moneycontrol. "Given our large import bill, a drop in oil prices reduces the current account deficit by 30 bps for every $10 decrease in oil prices," Sakshi Gupta, Principal Economist, HDFC Bank said.

Economic uncertainty due to global trade tariffs and fears of a US recession have been weighing on international oil prices for some time. Already, US economic data has showed that the American economy unexpectedly contracted during the first quarter, a first since 2022, as business activity was disrupted due to tariff-related uncertainties, prompting renewed fears of a recession in the US economy. The US consumer confidence is down to its lowest in nearly five years in April, roiled by tariff-related concerns.

An anticipated decision by OPEC+ to increase production in May is further putting pressure on crude oil prices. Experts see oil prices staying below $75 per barrel in the medium term as trade-related uncertainties and oversupply in the market could continue to weigh.

Goldman Sachs recently said that Brent prices have an outside chance of falling below $40 a barrel under 'extreme' outcomes, due to the trade war and rising global oil supplies.