Solid cons: OPEC+ decided to reduce oil supply in May

The OPEC oil cartel announced that in May its partner countries will have to reduce oil production by 378 thousand barrels instead of 309 thousand previously announced. This follows from the published new compensation schedule for previously under-reduced production volumes. The decision was expected — against the backdrop of Donald Trump's tariff wars, the price of oil fell below $60 per barrel, which makes some oil production projects unprofitable. According to experts, the current decision will not be able to have a radical impact on the global oil market, but it will not allow oil prices to fall further.

Compensation plans

The OPEC secretariat has received updated compensation plans from Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan and Oman. According to published data, in May these countries will have to reduce oil production by 378 thousand barrels against 309 thousand previously announced. This is stated in the official statement of OPEC.

The total amount of this compensation should amount to 4,572 million barrels. Production cuts are expected to begin in the current months and will last until June 2026.

Iraq will have to compensate for overproduction of 1.934 million barrels per day, Kazakhstan — 1.299 million barrels, Russia — 0.691 million barrels, the United Arab Emirates — 0.386 million barrels, Kuwait — 0.150 million barrels, Oman — 0.097 million barrels and Saudi Arabia — 0.015 million barrels per day during this period. The largest total reduction in production by these countries by more than 500 thousand barrels is expected in August and September of this year.

Saudi Arabia will compensate for its small volumes — only 15,000 barrels - this month, while Russia will compensate for overproduction until September 2025 inclusive. Other "malicious violators" of the OPEC+ deal, Iraq and Kazakhstan, have extended their compensation period to the latest, until June 2026. Only Kazakhstan will try to choose most of the compensation in the coming months, while Iraq is ready to reduce oil production in approximately equal parts of 120-140 thousand barrels per month.

The market reacted to the news from Vienna with a slight increase in prices. If at 9.00 Moscow time Brent was trading at $63.8 per barrel, then after the publication of compensation, it was already worth $65.42 (as of 15:40 Moscow time).

There is no denying the logic

According to Alexander Frolov, Deputy Director General of the National Energy Institute, the increase in compensation plans was agreed in advance.

— The basis for this increase was the decision of the OPEC+ countries to accelerate the recovery of production in May. Accordingly, all "debtors" will be able to close their production reduction debts earlier," the source said.

Ekaterina Kosareva, Managing Partner of WMT Consult, agrees with this opinion. According to her, the decision of the participating countries to increase the volume of production compensation is quite expected.

— After the American president launched a tariff war in early April on fears of a slowdown in the global economy and recession, oil prices went down. The oil cartel added fuel to the fire with its decision on April 3 to increase oil production by 411,000 barrels. After that, oil prices dropped below $60 per barrel. Therefore, it is logical that we now see an increase in compensation volumes. Especially in a period of uncertainty with American tariffs," the Izvestia interlocutor notes.

Recall that in early April, Trump announced the introduction of mirror duties on more than 200 countries. For the EU, the rate was 20%. Then on April 9, when the measure was supposed to take effect, the US president announced a 90-day pause — the base rate of 10% is valid for this period. Brussels has also suspended the introduction of retaliatory measures for this time.

In addition, on March 12, the United States imposed 25% duties on steel and aluminum imports from the EU worth $25 billion. Brussels imposed retaliatory duties on $22 billion worth of imports from the United States. Some goods will be subject to duties from April 15, while others will be subject to duties from mid—May.

And on April 16, it became known that US President Donald Trump imposed duties on China, reaching 245%, in retaliation. This is reported on the White House website.

"As a result of the retaliatory actions, China now faces import duties to the United States of up to 245%," the Trump administration's website says. It clarifies that more than 75 countries have approached the United States with a proposal to negotiate new trade agreements.

According to Kosareva, while tariff negotiations are underway, oil prices will be teetering on the edge of profitability of production.

— Despite the fact that the cost of oil production in Saudi Arabia and Russia remains significantly lower than in shale fields in the United States, and there are projects in our country where the cost of production is above $50 per barrel, and Riyadh has to abandon some investment projects amid falling oil prices, - the expert notes.

Not the best trump card

OPEC +'s actions are quite natural — against the background of declining world prices, it uses the mechanisms of influence on the market that it still has. The main one is the adjustment of the volume of overcapacity compensation, recalls Valery Andrianov, associate professor at the Financial University under the Government of the Russian Federation.

— That is, a number of alliance members will reduce their production in larger volumes than previously expected, as a "payment" for previously violated quota discipline, but at the same time the current quotas will not be reduced, which could cause dissatisfaction among a number of parties to the agreement. As a result, supplies from OPEC+ will reportedly be reduced from April 2025 to June 2026 by an additional 568,000 barrels per day," the expert said.

At the same time, according to Andrianov, this step by the alliance will not be able to compensate for the damage to market conditions caused by the tariff war of Donald Trump.

"It only demonstrates that OPEC+ is still keeping its finger on the pulse and is not going to give up in the face of the current unfavorable circumstances, and even more so, we are not talking about the dissolution of the alliance, as predicted by a number of sources,— Valery Andrianov believes.

Recall that in early April, speaking about the increase in production, the alliance stressed that "the imposed increases may be canceled depending on changes in market conditions.

"This flexibility will allow the organization's participants to accelerate the compensation of previously under-reduced volumes," the cartel said in a press release.

According to Ekaterina Kosareva, OPEC+ is currently taking a wait-and-see attitude, observing the tariff confrontation between the United States, Europe and China. And the next OPEC+ meeting is scheduled to take place on May 5.

According to Valery Andrianov, real support for world oil prices will be possible either in the event of the cessation of the aforementioned tariff wars, or in the event of a new major military conflict involving any country exporting oil.

— In the latter case, the most obvious option is a US strike on Iran. If such events do not occur, then the quotes of "black gold" may remain weak until the end of 2025, in an optimistic scenario – $ 65-70 per barrel, Ekaterina Kosareva believes.

And in the event of an escalation of the trade war between the United States, China and Europe, they may fall below $ 60 per barrel.