Head of Commodity Strategy
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Key points:
OPEC+ raises output again: Saudi-led supply boost aims to enforce compliance and pressure high-cost rivals
U.S. shale feels the pinch: Sub-$60 WTI threatens profitability, with top producers cutting spending and signs that production growth is stalling.
Compliance and sanctions in focus: Overproduction by Iraq, Kazakhstan, and UAE, plus rising Iranian and Venezuelan output remains a challenge for OPEC+
Associated gas at risk: Lower shale output could drag down U.S. natural gas supply, just as global demand for cleaner energy sources rises.
Crude prices climb for a second consecutive day, fully reversing Monday’s sharp decline, which was triggered by an OPEC+ announcement to increase supply more aggressively than expected for a second straight month. The move, largely driven by Saudi Arabia, appears to be a calculated response to persistent non-compliance within the group—particularly from Kazakhstan—and also aligns with former President Trump’s push for lower oil prices. Over time, OPEC could benefit from this strategy through increased market share, as sustained low prices may challenge the economic viability of higher-cost producers. Part of the rebound in crude prices stems from the fact that last week's market already priced in the likelihood of another production hike. This occurred even as broader risk sentiment improved amid growing optimism around U.S.-China trade negotiations. As seen in the WTI crude chart, the most recent selloff halted just above the early April “Liberation Day” low of USD 55 per barrel. Strong technical resistance remains in place ten dollars higher at USD 65 per barrel.
With the latest planned addition of 411,000 barrels per day (b/d) in June, the OPEC+ alliance will already have unwound more than 40% of the 2.2 million b/d in production cuts implemented between 2022 and August 2023. However, the group’s credibility has been undermined by widespread quota violations. Recent compliance data suggests cumulative overproduction of around 800,000 b/d, with Iraq, Kazakhstan, and the UAE cited as the main culprits.
Complicating the picture further, Iran and Venezuela—both under U.S. sanctions and exempt from OPEC+ quotas—have collectively increased their output by over 1 million b/d since September 2022. If the U.S., under renewed focus from President Trump, manages to enforce stricter sanctions on these two nations and if compliance within OPEC+ improves, the actual net increase in global supply could be far smaller than market fears suggest. Combined with a potential output decline from high-cost producers, this scenario could help rebalance the market more quickly than expected.
U.S. oil production growth is showing signs of fatigue. Two major shale operators have announced spending cuts in response to the price downturn, raising concerns that American output may have already peaked. Sub-$60 WTI prices put many shale operations at risk of becoming unprofitable, threatening future investment, production, and ultimately, market share—particularly to lower-cost OPEC+ producers.
Annualized U.S. oil production growth has slowed to 2.8%, with shale oil—the source of roughly three-quarters of total U.S. output—growing at less than 2%. If WTI prices remain below USD 60 for an extended period, a production rollover becomes increasingly likely, opening the door for rival producers to fill the gap.
It's also important to consider the knock-on effect on natural gas. More than one-third of total U.S. natural gas production comes from associated gas—a byproduct of crude oil extraction—especially from major shale plays like the Permian Basin in Texas and southeastern New Mexico. A downturn in oil output from these fields would likely lead to a decline in associated gas production as well. This comes at a time when demand for natural gas is expected to rise substantially, both in the U.S. and globally, as utilities shift toward cleaner power generation sources.
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