CICC: OPEC+'s decision to accelerate production growth in May exceeds market expectations and will increase excess pressure on the oil market

The Zhitong Finance App learned that since April 3, CICC released a research report saying that since April 3, the US “equal tariff” policy suppressed economic growth expectations. Brent oil prices plummeted 12.5% on both days and fell further below 65 US dollars/barrel last week; looking back at history, most of the similar price declines occurred during the economic recession. At a time when demand expectations are under pressure, OPEC+ decided to accelerate production growth in May, exceed market expectations, or be affected by external factors such as politics and geography, and will increase excessive pressure on the oil market. High-frequency data shows that the number of active US oil rigs began to decline since March, and the cost test for North American shale oil may have arrived.

Combining fundamental changes since the beginning of the year, the annual oil oversupply and demand forecast was raised to 670,000 b/day, and the central price of Brent oil was lowered to 70 US dollars/barrel. The central price for the 2-4 quarter was 67.5, 72.5, and 65.0 US dollars/barrel, respectively. Furthermore, under the risk situation, if global economic growth is further pressured by trade frictions, it may bring additional room for decline of about 5 US dollars/barrel for oil prices.

CICC's main views are as follows:

OPEC+ production policies may be affected by exogenous factors, which may increase excess pressure

On the evening of April 3, OPEC+ decided to start increasing production as scheduled in April and accelerate production growth in May, exceeding market expectations. On the one hand, OPEC+ may not yet face external pressure to adopt a “low price guarantee.” The intensity of global upstream oil and gas investment is still at a historically low level, and the capital expenditure intensity of North American shale oil companies has also declined since 2021. Since 2024, US crude oil production has stabilized at a high level. The trend of increasing and decelerating shale oil production has basically been confirmed, and non-OPEC supply growth has also clearly slowed. Therefore, it is believed that the external competitive pressure currently faced by OPEC+ is not comparable to 1985 and 2014.

On the other hand, although there are certain production discipline issues within OPEC+, core OPEC+ member countries such as Saudi Arabia and Russia have not had major differences similar to those in 2014 and 2020, and high oil prices still have common demands to guarantee a balance of fiscal surpluses. According to IMF estimates, Saudi Arabia's fiscal surplus balance oil price in 2025 is about 84 US dollars/barrel. The Russian Ministry of Finance recently stated that Russian oil revenue fell 10% year on year in 1Q25, and the continued decline in oil prices may further increase the pressure on fiscal revenue. Recently, Russia has also publicly promised that it will abide by production discipline and proposed that “if market conditions deteriorate, the decision to increase production may be reversed.”

CICC believes that OPEC+'s decision to increase production may be influenced by exogenous factors such as politics or geography, and may put excessive pressure on the oil market. Considering the implementation of the actual production plan, it is estimated that after the accelerated increase in production in May, the actual year-on-year increase in OPEC+ crude oil production may increase from 220,000 b/d to 320,000 b/d this year. According to the current production increase plan, the centralized release of OPEC+ supply increases may be due to 2026. In a situation where the impact of geographical supply does not develop further, it may further increase excess pressure, and there may still be uncertainty about the subsequent implementation of production policies.

The cost test of shale oil in North America has arrived, and the number of active rigs has begun to decline

CICC pointed out that if the WTI oil price center falls further, North American shale oil may face a cost test. The 1Q25 Dallas Federal Reserve's research results are basically consistent with the cost estimates for US shale oil. Nearly 120 US oil and gas explorers estimate that the average WTI oil price required to achieve profit from new well drilling in 2025 is 65 US dollars/barrel. Looking at branch size, the WTI oil price required for new well drilling is about 66 US dollars/barrel for producers with output less than 10,000 barrels per day, and about 61 US dollars/barrel for producers with output higher than 10,000 barrels per day.

High-frequency production indicators show that the cost test for North American shale oil may have begun

The WTI oil price center has fallen to the 65-70 US dollars/barrel range since March, and has further fallen below 65 US dollars/barrel since April. The number of active oil rigs in the Permian production area has declined. As the number of active oil rigs fell to 289 in March, it is estimated that shale oil production in the Permian region may face month-on-month production pressure starting in the middle of this year. As of the week ending April 11, the number of active oil rigs in the Permian region has dropped further to 286, a cumulative decrease of 16 compared to the end of February. At the same time, the pressure of old wells in the Permian production area has further increased to 427,000 b/d in March of this year, and DUC well stocks have stabilized at a basically low level. Update the estimates of shale oil production in the Permian production area under different WTI oil price centers. If the 2-4Q25WTI oil price center continues to fall below 65 US dollars/barrel, it is expected that the annual shale oil production in the Persian production area may decline year-on-year.

Excess pressure challenges cost support and lowers oil price central forecasts

Global oil demand increased by about 1.22 million b/d in the first quarter. Among them, demand performance in January-February exceeded market expectations. US consumption of refined oil products maintained a year-on-year growth rate of more than 3%, and China's apparent consumption of refined oil products also increased by about 1.7% year-on-year. However, since March, the marginal growth of demand has slowed. US consumption of refined oil products fell by about 1.2% year on year, OECD Europe fell by about 0.1% year on year, and India's refined oil consumption fell further to 3.1% year on year. Looking at the whole year, based on the latest OECD forecast of a 3.1% year-on-year increase in global real GDP this year, global oil demand is expected to increase by about 1.03 million b/d. Among them, considering that there is still uncertainty about the implementation of the equal tariff policy, its adverse effects have not been fully included, and further demand shocks have also been measured by situation.

Global oil supply is currently expected to increase by about 1.63 million b/d this year

Among them, the decision to increase OPEC+ production may be affected by exogenous factors, but it may not yet face internal and external pressure to adopt a “low price guarantee” strategy. It is also assumed that Iran's crude oil production remains flat year on year and Kazakh crude oil production does not increase further month-on-month; the cost test of shale oil in North America has begun, reducing the growth rate of US crude oil production. It is expected that shale oil production will remain basically the same year over year.

Looking at the balance for the whole year, global oil supply and demand may be surplus of 670,000 b/day, lowering the Brent oil price center to 70 US dollars/barrel in 2025. The 2-4Q25 quarterly centers were 67.5, 72.5, and 65.0 US dollars/barrel, respectively. Under the risk situation, if global economic growth is further pressured by trade frictions, it may bring additional room for decline of about 5 US dollars/barrel for oil prices.

The initial outlook for 2026 is highly uncertain about demand growth and the impact of the geographical situation, and may need to be discussed on a case-by-case basis

On the one hand, if trade frictions slow down global economic growth further, the Brent oil price center may move below $60 per barrel, prompting further withdrawal of high-cost supply. On the other hand, the impact of the geographical situation on oil supply to Iran, Venezuela, etc. remains to be seen. Looking back at Trump's first term, Iran's crude oil production declined by 230,000 b/d and 1.21 million b/d in 2018 and 2019, respectively. In 2024, Iran's crude oil production has rebounded to 3.29 million b/d, an increase of about 940,000 b/d over 2019; crude oil exports have recovered to 1.7 million b/d, an increase of about 1.1 million b/d over 2019.

CICC believes that if the potential reduction in Iran's supply is realized, or if it can provide more room for OPEC+ to further release remaining production capacity, the cost challenge for marginal producers may be mitigated. Under these circumstances, the Brent oil price center may be expected to remain above $70 per barrel.

Risk Alerts

The slowdown in global economic growth exceeded expectations, changes in the geographical situation exceeded expectations, OPEC+ production policy changes, and US energy policy changes.