OPEC+ is set to implement another aggressive supply increase. Effective from June, this move marks a shift in their policy. Recent decisions suggest further supply increases may be likely in the upcoming months. This change has prompted a revision of oil forecasts, predicting a reduction in prices.

Saudi Arabia is leading the charge for larger supply increases, aiming at members producing above their targets. OPEC+ surprised the market in April with an unexpected increase of 411k barrels per day for May. Recently, they announced a similarly bold increase for June. Originally, OPEC+ aimed to bring back 2.2 million barrels per day over an 18-month timeline.

Supply Dynamics Affected By Tariff Risks

Demand uncertainties persist due to tariff risks, adding to supply-side unpredictability. The group will determine future output levels on a monthly basis. Saudi Arabia’s tolerance for low prices over time is a key factor. With current prices below their fiscal breakeven of US$90 per barrel, Saudi Arabia might need to adjust their budget or seek debt solutions. The increasing gap between their fiscal needs and market prices suggests potential spending cuts or debt market engagement.

What this means is that the wider group of oil-exporting nations, together with key Gulf producers, is no longer holding back supply in the way we became used to. More oil is coming to the market, and it’s happening faster than previously communicated. The original plan was to add 2.2 million barrels per day in stages over a year and a half—but decisions taken in April and recently in May have brought that forward. In plain terms, there’s more oil sloshing around than people were expecting even a few weeks ago.

The market felt the impact of that surprise. We noticed downward pressure on crude prices almost immediately after the early signals of stronger-than-expected output. A fresh bout of supply from key exporters into a market still navigating weak demand data left little room for pricing strength. Brent futures drifted lower, and implied volatility in options markets has picked up. The forward curve flattened. In short, the floor under prices got a bit weaker.

It’s not just the volume of new barrels that matters—it’s the pace and timing of these decisions. The monthly nature of these updates keeps uncertainty alive, especially for short-duration contracts and those positioned in the front end of the curve. For traders watching implied vol levels or looking for hedging signals, this kind of pacing creates sharp micro-adjustments in expectations. With each monthly review, the potential for another change in supply sits in the background, influencing risk pricing.

Impact Of Tariff Risks On Demand Side

Tariff risks on the demand side are also noticeable. Unclear trade terms, especially between major economies like the US and China, are making end-user demand in certain sectors look shakier. That’s feeding into a murky demand outlook, which, when combined with more barrels—and from members previously not compliant with production limits—leans bearish. It’s not about fear, but recalibration. Price forecasts have already responded and implied options skew has shifted slightly more neutral after spiking in late Q1.

Looking at Saudi Arabia more deeply, the endurance of lower prices is something we’re watching closely. With prices anywhere near current levels, they are flirting with a fiscal shortfall. Their state budget assumes oil at around US$90 a barrel, and anything shy of that implies a widening deficit. This becomes even more relevant if they remain committed to holding production high. That balance—supporting broader OPEC+ output while managing domestic financial stability—forces choices. They can either trim spending or increase debt issuance. Either option carries implications for oil policy.

For those of us positioning over the next few weeks, especially in derivatives tied to prompt delivery, we are factoring in this shorter cycle of policy direction. The era of long phases of supply consistency appears to have changed. Now, we must watch announcements more frequently and prepare for fast pivots. Curve positioning is adjusting accordingly. Call skew in medium-dated options has eased back, while put interest is growing modestly as traders attempt to guard against a further leg lower in flat price.

With monthly meetings determining future volumes, and price action increasingly driven by policy moves rather than inventory or consumption shifts, it’s essential to keep models flexible. Options markets are likely to stay active, especially near key expiry points. Continuing this trend of volume expansion, unless curtailed by internal dissent or macro shocks, should remain a pressure point for longs.

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