A bold Saudi-led move to reorder the global oil market with an aggressive ramp-up of OPEC+ supply is forcing Wall Street observers to cut price forecasts, refine warnings for a glut and brace for more twists.
Crude futures took a dive on Monday, after the cartel announced an additional 411,000 barrels a day of supply for June.
The meeting that signed off on the surge was advanced by two days to Saturday, and after the figures were out, Riyadh followed up with a warning yet more increases could be in store.
Goldman Sachs shaved Brent forecasts by US$2 to US$3 barrel for this year and next, while Morgan Stanley made a bigger move, paring quarterly estimates for this year by US$5. Elsewhere, ING pruned its outlook.
The oil market has been rocked this year by the Trump administration's aggressive trade war, resulting concerns about a recession and sharp swings in appetite for risk.
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At the same time, OPEC+ has executed a dramatic policy pivot, ditching a plan for a series of modest, monthly increments to revive shuttered supply with something much bolder.
The result has been a slump in futures to a four-year low, with analysts hard-pressed to rework their sums as circumstances change, and then change again.
Saudi Arabia linked the latest OPEC+ supply hike to a push to discipline the group's own members who have serially flouted quota commitments, with Kazakhstan and Iraq in focus.
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In addition, geopolitical considerations may be in the mix for Riyadh as its seeks goodwill from the US administration, while challenging the rise of US shale may also be a target.
"Our key conviction remains that high spare capacity and high recession risk skew the risks to oil prices to the downside, despite relatively tight spot fundamentals," Goldman Sachs analysts including Daan Struyven said in a note.
Beyond its own members, the OPEC+ move may be aimed at "strategically disciplining US shale supply", they said.
The bank - which earlier this year delivered two price-forecast tweaks in the space of a week - said it would redo sums for the global market balance in coming days, reflecting concerns supplies will run ahead of demand.
Morgan Stanley's revised price forecasts - which now peg Brent at US$62.50 a barrel in the third and fourth quarters - hinge on its expectations for a more sizeable glut. Following the latest OPEC+ salvo, it sees the surplus rising by 400,000 barrels a day, hitting 1.1 million barrels in the second half.
"We interpret OPEC+'s communication as an indication that it may unwind its production quota faster altogether," Morgan Stanley analysts including Martijn Rats said in a note entitled "Weaker Balances Ahead After OPEC Hike".
Brent futures were last 2.7% lower at US$59.63 a barrel on Monday. With prices in retreat, ING put the spotlight on Riyadh's ability to tolerate lower crude revenues, as well as the complex global picture.
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"The key to knowing how far the Saudis will take what is starting to look like a price war is the nation's tolerance for low oil prices over time," said Warren Patterson, head of commodities strategy. "The oil market has been dealing with significant demand uncertainty amid tariff risks. This change in OPEC+ policy adds to uncertainty on the supply side."
ING's Patterson added: "These more aggressive supply hikes from OPEC+ mean that the oil surplus will be brought forward, leaving the market in surplus throughout 2025."
Chart: Bloomberg
