Oil prices slump to four-year low amid Opec+ production push
Oil prices have slumped to a four-year low as concerns over a supply glut from Saudi Arabia and a slowing global economy rattle the sector.
Brent crude, the global benchmark, has fallen more than four per cent after oil cartel OPEC+ agreed over the weekend to increase oil production by another 411,000 barrels a day starting in June.
“This comes in sharp contrast to moves over the last couple of years to support higher prices through steep OPEC+ production cuts,” noted David Morrison, senior market analyst at Trade Nation.
The push in production was spearheaded by Saudi Arabia, which has threatened to continue the high pace of production increases if other OPEC+ countries don’t stop producing above quota levels.
Chris Weston, head of research at Pepperstone, said the OPEC+ alliance was “clearly fractured,” as the Saudis demanded “complete adherence to the set output limits”.
The production increases have come “at a much more aggressive rate than traders were previously expecting,” added Morrison, and put further pressure on oil prices, which had already been in decline.
Prices of the fossil fuel took a sharp hit from US president Donald Trump’s trade war, falling from around $75 to $65 in the week following ‘Liberation Day’, thanks to expectations of a slowdown in global economic growth.
Following the announcement from Saudi Arabia, prices dipped as low as $58, and currently sit at $60.33, the lowest point since February 2021.
As a result of the move, Goldman Sachs downgraded its price forecasts, now anticipating Brent crude to average $60 a barrel throughout the rest of the year, down from $63 previously.
“Our key conviction remains that high spare capacity and high recession risk skew the risks to oil prices to the downside,” said Goldman analysts.
Thanks to the fall of the US dollar against the pound, the price drop in oil has been even more severe in sterling terms, with oil falling 30 per cent since January.
“A similar story holds when looking at the twelve-month contract for UK natural gas,” noted Deutsche Bank analyst Shreyas Gopal.
“The benefits to the UK consumer from a fall in energy prices are obvious, with lower pump prices a boost to real disposable income.”
Bank of America analysts recently selected London-based Shell as the “the most resilient to price fluctuations” among the listed oil giants globally, stating that it would break even if Brent prices fell to $65.
The analysts expected buybacks to continue strong for Shell at $14bn this year, while forecasting a 55 per cent decline in share buybacks from rival BP, which is only projected to purchase $3bn of shares in 2025.
Over the weekend, reports emerged that Shell was weighing a takeover bid for BP after the firm has made major strategic overhauls to roll back its investments in renewable energy.