OPEC+ remains in control despite weakening demand and US-China tariff tensions

Oil prices may fall to $50 per barrel as trade tensions between the US and China show no signs of abating. 

In such a scenario, the Organization of the Petroleum Exporting Countries remains in control of the oil market. 

The escalation of the US-China trade war has overshadowed the 90-day tariff pause on other nations, moving the conflict closer to a point of no return.

Despite fluctuating prices and weakening demand, OPEC+ retains control and the ability to adjust production as necessary, according to Rystad Energy.

The transportation sector (including light-duty vehicles, aviation, trucking, and maritime) and the petrochemical sector would experience the most significant negative impacts in a prolonged trade war, Janiv Shah, vice president, commodity markets analysis, oil at Rystad Energy, said in an emailed commentary.

“In this scenario, we could see Brent oil prices drop to the $50s,” Shah added.

Demand scenario

The absence of a resolution on tariffs and sanctions will result in high economic uncertainty, increased costs, and investment delays.

“Using a conservative estimate of a 15% decline in global GDP growth – based on the impact of the US-China trade war of 2018-2019 – we could see oil demand growth sputter to just 600,000 bpd in 2025, roughly half of our pre-tariff estimates,” Shah said.

The tariffs were much lower back then at 25%, compared to the current proposals, as of 14 April, of 145% US tariffs on Chinese goods and 125% Chinese tariffs on US imports.

Earlier this week, the International Energy Agency cut its forecast for growth in global oil demand by 300,000 barrels per day to just 730,000 barrels a day. 

OPEC, in its monthly oil market report, also lowered its forecast for demand this year slightly. The cut was not as prominent as that of the IEA’s. 

The essential issue is determining what will cause the supply adjustment needed to halt the drop in oil prices, according to Shah.

“The obvious answer: more OPEC+ production cuts from August onward,” Shah added.

OPEC’s role is key

OPEC+ has the ability to adjust production by slowing or reversing increases if demand continues to decline or external supply rises too rapidly.

OPEC+ remains in control and will take action to prevent sustained price drops. 

The potential decision reflects OPEC+'s ongoing efforts to maintain balance in the market.

Shah said:

Rystad Energy’s estimates suggest that the non-OPEC+ supply growth of more than a million barrels per day from major countries could come under significant risk.   

The initial estimates predicted that non-OPEC+ producers would see a growth of 1.2 million barrels per day in 2025. 

Competition heating up

However, growth from the top five non-OPEC+ producers (US, Brazil, Canada, Norway, and Argentina) may fall short of this estimate and face downside risks.

The risk is not solely from decreased prices, but also from decreased demand from non-OPEC+ crude buyers.

“The aggressive drop in Saudi Arabian crude oil Official Selling Prices (OSPs) this month shows that competition for crude demand is heating up,” Rystad Energy said.  

Given a possible production loss of 500,000 barrels per day for non-OPEC+ producers, OPEC+ will likely maintain a strong position in managing price fluctuations.

Moreover, OPEC has around 5.85 million barrels per day of spare oil production capacity. 

This translates to about 6% of the total global oil supply. 

The compliance issue remains

However, a key factor in the success of the OPEC+ strategy is compliance.

Some members have exceeded their production quotas, particularly Kazakhstan, and have struggled to comply with the agreed-upon limits.

Compensation was highlighted as a necessity by OPEC+.

On Wednesday, the cartel said it had received new compensation plans from the likes of Iraq, Kazakhstan, and other member countries. 

The updated OPEC compensation plan increases monthly production cuts, now ranging from 196,000 barrels per day to 520,000 barrels a day, effective from this month until June 2026, the cartel said in an official release.  

The previous plan had lower cuts, ranging from 189,000 barrels per day to 435,000 barrels a day.

The oil market would be further supported if the planned production cuts are fully implemented. 

This is due to the fact that these cuts would largely counterbalance the planned 411,000 barrels a day output increase by other OPEC+ members in May.

Meanwhile, supply concerns in the oil market were rife as the Trump administration revealed new sanctions on Wednesday targeting Iran’s oil exports, with measures against a China-based “teapot” refinery also included.

David Morrison, senior market analyst at Trade Nation, noted: