Market balance tilts bearish as OPEC+ supply strategy collides with U.S. and Iranian resilience

Executive Summary

Americas:

• Neutral-to-Mildly Bearish US Crude Output: Flatlining around 13.5 Mbd amid price volatility and capex cuts, raising questions about peak production. Downside risk of ~120 kbd by year-end projected.
• Bullish Canadian exports: Robust flows supported by strong oil sands production and enhanced TMX pipeline capacity, particularly strong exports to Asia.
• Neutral Brazilian exports to EoS: Sharp increase with growing supplies from FPSO, though OPEC+ barrels may displace some flows East of Suez going forward.

Atlantic Basin:

• Bearish on Red Sea crude transits despite the US-Houthis ceasefire as shipowners will proceed with caution.
• Bearish on BFOET differentials amid ongoing maintenance and refinery closures in the region.
• Bullish on Angolan crude demand as the Cabinda refinery should start up operations in the summer.

Middle East and Asia:

• Bearish on Iranian crude exports in May, as tighter U.S. sanctions add to shipping constraints and may further deter buyers.
• Bullish on China’s domestic oil production despite weaker oil prices and a subdued demand outlook.
• Neutral to bullish on India’s crude imports from Russia, with more tankers joining the fleet to transport Russian cargoes.

S&D highlights

Over the past month, our crude oil supply-demand outlook has further loosened, driven by two reinforcing dynamics: the material unwinding of OPEC+’s voluntary supply cuts and a softer-than-expected refinery demand profile across several key economies. These developments significantly lengthen our crude and condensate balances for both 2025 and 2026, with implications that are likely to extend beyond near-term fundamentals and into the price formation process itself.

OPEC+’s decision to begin gradually restoring production, following the earlier 2.2 Mbd compensation cuts. This supply response, timed alongside improving non-OPEC+ production in Canada, Brazil, and China, shifts the balance meaningfully toward surplus conditions in the second half of this year and into next. Even with geopolitical supply risks still embedded in our forecasts, most notably ongoing losses in Iran and Venezuela (a combined 670 kbd by year-end), the weight of incremental barrels is beginning to test the market’s capacity to absorb them, as seen in the ballooning global oil inventories in the past weeks.

On the demand side, while fears of trade-related disruptions have faded somewhat, refinery behavior signals that fundamentals remain weak. We have revised crude intake lower in China, India, and the US, amid inventory builds, extended maintenance, and weakening refining margins. These adjustments suggest that demand growth will struggle to keep pace with the accelerated supply-side recovery, at least in the near term.

As a result, our balance for 2025 now points to a surplus approaching 700 kbd, more than triple last month’s estimate. For 2026, the projected overhang exceeds 1 Mbd on average through October, an unsustainable level at current price assumptions. Unless a price-led rebalancing materialises through stronger demand or lower-than-expected supply, our forward price forecasts are likely to face further downward revision.

At the same time, a weaker price environment could set the stage for structural adjustments next year, including sharper-than-anticipated supply rationalisation in price-sensitive regions like US shale (see Chart of the Month section), and potentially firmer demand if lower prices stimulate consumption, likely reducing our next balance length update.

Global crude and condensate balances, kbd

Source: Kpler

Crude production revisions April 2025:

• The group of eight OPEC+ member countries began unwinding the 2.2 Mbd compensation cuts in April, starting with an increment of approximately 137 kbd, followed by 411 kbd this month and in June. Consequently, we have implemented these changes in our crude balances, resulting in upward revisions for some countries. Saudi Arabia's supply was therefore adjusted up by an average of 255 kbd from June through December and by the same amount in 2026. Russia's output has seen upward revisions averaging 100 kbd in the second half of 2025 and 130 kbd next year. Kuwait's production is now up by 40 kbd and 20 kbd, respectively. These changes, coupled with downward revisions on the crude demand side (see our comments below), have lengthened our crude balance for both this and next year. It should be noted that we still expect crude intake growth of around 400 kbd year-on-year in 2026
• China crude production was aligned with national statistics for March, resulting in an upward revision of 120 kbd, lifting overall output to 4.3 Mbd, the highest level since at least 2017
• US crude supply was lowered by 90 kbd for this year and by approximately 170 kbd in 2026, based on the outlook for lower oil prices. Pressured prices are expected to challenge the resilience of US shale producers as breakeven levels are tested
• Canada output is projected to rise by 130 kbd from Q2 through Q4 2025 and by 160 kbd y/y in 2026, as Alberta's oil production showed strong performance in March, reaching 4.19 Mbd, with the primary driver of this growth remaining the province's oil sands
• Brazil production was increased by approximately 40 kbd from April onwards, amid official monthly data indicating output surpassing 3.6 Mbd in March. This robust performance was driven by record-high pre-salt supplies fueled by the ramp-up of several new FPSOs in late 2024 and early 2025

Production revisions, kbd

Source: Kpler

Refinery crude demand revisions April 2025:

• China crude demand was revised upward by 150 kbd in April, an adjustment supported by our implied model calculations. We have lowered our throughput projections for May by 260 kbd based on rising crude inventories reaching 954 Mbbls (+27 MBbls m/m) and offline capacity peaking at approximately 2 Mbd of capacity this month
• Kuwait crude intake decreased by almost 120 kbd in April, which was supported by our negative balancing factor and lower clean product exports observed last month. Moreover, the Mina Abdullah refinery is expected to undergo maintenance in the first half of May
• Iran refinery runs were adjusted up by nearly 110 kbd in April amid steady clean product exports, ahead of significant maintenance set for this month, during which 240 kbd of CDU capacity is set to remain offline
• India refinery runs were aligned with national statistics, resulting in a significant downward correction of nearly 260 kbd for March. Despite robust crude imports in March, refiners likely reduced runs in anticipation of planned maintenance, with offline capacity having peaked at 320 kbd in April, a view supported by building inventories jumping from 93 Mbbls in February to 102.8 Mbbls by the end of April. Jamnagar’s CDU 1, with a capacity of 330 kbd, was offline for almost the entire month of April, leading us to further reduce runs by 30 kbd for last month. Going forward, we have lowered our crude intake outlook for 2026 by approximately 100 kbd as we expect the Barmer and Numaligarh refineries to experiment a slower ramp-up (see our Refinery Status report). The country’s yearly average is now projected to hover close to 5.5 Mbd in 2026, up 60 kbd y/y
• Japan refinery throughput was adjusted up by 90 kbd in April, in line with official weekly data, and May estimates have been increased by the same amount
• South Korea robust clean product exports, which increased by 200 kbd m/m in April, along with drawing crude inventories, prompted us to increase crude intake by 145 kbd in April. This also indicates that refiners have swiftly returned from the significant maintenance seen in March
• US refinery runs have been aligned with official weekly data. PADD3 data came in stronger than expected, leading to an upward US adjustment of 60 kbd in April. Furthermore, we aligned PADD-level runs with planned maintenance schedules, refinery closures, and seasonal patterns for the remainder of 2025. In our base case for 2026, we have incorporated the shutdown of Valero Energy’s 145 kbd refinery in Benicia, California, by the end of April 2026, resulting in an overall crude demand reduction of approximately 80 kbd for the year
• Russian crude intake increased by nearly 80 kbd in April, despite refiners conducting spring maintenance during this period. This adjustment is primarily supported by lower crude exports observed in April (down 100 kbd m/m) and higher clean and dirty products exports last month (up 170 kbd m/m), indicating higher processing rates. Meanwhile, maintenance is expected to peak in May with some 800 kbd of downstream capacity undergoing repair works. In 2026, we have slightly lowered our refinery runs outlook by 50 kbd, although we still expect higher y/y runs by 70 kbd, assuming no further Ukrainian drone attacks on Russian downstream facilities
• Nigeria crude throughput was adjusted down by 30 kbd in the second half of 2025 and by 80 kbd in 2026, as we expect delays at Port Harcourt’s second CDU with a capacity of 150 kbd, which is now set to come online in August this year. At the moment, our 2025 yearly averages show Nigerian runs at 480 kbd and 610 kbd in 2026

Global crude intake, Mbd

Source: Kpler

Chart of the Month

OPEC+’s recent shift in strategy, prioritising market share over price support, has reshaped the production risk landscape for U.S. shale. The group’s phased supply ramp-up raises the risk of extending and deepening the ongoing price downturn well into 2025 and beyond. One clear objective appears to be to pressure U.S. shale operators, or at the very least, to make future production growth more capital-intensive and less assured.

However, U.S. producers have demonstrated remarkable resilience over the past decade, and we expect this to persist. The growing presence of integrated oil Majors in U.S. shale since 2020, following a wave of consolidation, has introduced more disciplined capital deployment, improved operational efficiency, and greater tolerance for price volatility. This has allowed production to remain robust even in a softer price environment.

That said, the price signal still matters. Lower prices tend to filter through with a lag, but they inevitably impact drilling activity, well completions, and future output growth. However, lower upstream activity will take three to six months to start impacting the supply outlook. With the WTI forward curve now hovering below the $60/bbl mark through much of 2025 in our forecast, our latest modelling shows downside risks emerging for U.S. production next year and beyond.

In our base case, U.S. crude supply growth moderates in 2025 to less than 200 kbd, compared to a previously anticipated growth of 300 kbd. However, first signs of declines will be very mild, with output averaging 13.4 Mbd in H2, as efficiency gains help to offset lower spending. Nevertheless, if prices were to fall toward $60/bbl or lower for an extended period, production could begin to decline more severely by 2026.

U.S. crude supply sensitivity analysis, Mbd

Source: Kpler

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The full report is available within Insight and contains:

• Americas: US production outlook hinging of price forecasts
• Atlantic Basin: Maintenance and refinery closures pressure NWE crude demand in May
• Middle East and Asia: Tougher U.S. sanctions on Iran have yet to effectively rein in oil flows
• Maintenance & Outages

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