Oil prices drop as OPEC+ weighs accelerated production increase in June

Several OPEC+ members are planning to propose a second consecutive monthly acceleration of oil output hikes in June, Reuters reported on Wednesday.

Oil prices had fallen to a four-year low earlier this month due to the ongoing trade tensions between the US and China, and a surprising move by the Organization of the Petroleum Exporting Countries and allies to boost production by a hefty amount in May. 

Eight members of the OPEC+ alliance, including Saudi Arabia and Russia, agreed to accelerate production hikes in May by 411,000 barrels a day. 

The cartel is set to unwind some of its voluntary production cuts of 2.2 million barrels per day by raising output by 135,000 barrels per day in April. 

The market was expecting a similar rise for May as well. However, the decision to hike production by more than 400,000 barrels per day came as a surprise, which weighed on global prices. 

Production cuts and compensation plans

A meeting will be held on May 5 by the eight OPEC+ countries to determine the output plan for June, according to the report. 

The May agreement, which permitted a substantial output increase, had already caused friction among OPEC+ members. 

Some members pushing for a similar output increase for the following months heightened this tension further, exposing the divide between those adhering to targets and those exceeding them.

Last week, OPEC said that it had received updated compensation plans for overproduction during previous months from Algeria, Iraq, Kuwait, Saudi Arabia, the United Arab Emirates, Kazakhstan, Oman, and Russia. 

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

Experts believe that if the member countries stick to the compensation plan, the production increase of crude oil during May would be much less than on paper. 

Oil prices fall

Oil prices fell more than 2% on Wednesday after reports claimed that OPEC+ may accelerate the rate of production hikes in June as well. 

At the time of writing, the price of West Texas Intermediate crude oil was at $62.06 per barrel, down 2.5%, while that of Brent was at $65.86 a barrel, down 2.4% from the previous close. 

The members' dispute over production quota compliance is the background for OPEC's decision.

Meanwhile, Kazakhstan's new energy minister stated that the country will prioritise its own national interests when determining oil output levels, even if it conflicts with the interests of the OPEC+ producer group. 

This announcement comes after Kazakhstan angered other OPEC+ members by exceeding its production quota.

Oil prices had gained over 2% earlier on Wednesday after the US President Donald Trump backtracked from his threat of dismissing Federal Reserve Chair Jerome Powell from his position. 

Crude prices rose as US-China relations improved due to comments from Trump and Treasury Secretary Scott Bessent. They hinted at a reduction in the 145% tariff on Chinese imports, which could pave the way for trade negotiations between the two largest economies.

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