The recent announcement from OPEC+ to increase oil supply has taken the markets by surprise, leading to a significant decline in oil prices. On the previous day, ICE Brent crude fell more than 6.4%, marking the steepest drop since August 2022. This decline was driven not only by rising tariff concerns that raised doubts about global economic growth and oil demand but also by OPEC+’s unexpected decision to boost output in May beyond initial expectations. Originally projected to add 135,000 barrels per day, the group is now set to increase supply by 411,000 barrels per day, citing strong market fundamentals and a positive outlook.
However, the optimism surrounding OPEC+’s move is clouded by uncertainties surrounding tariffs, especially those affecting Venezuela and Iran. Some analysts speculate that these geopolitical dynamics might make it feasible for OPEC+ to raise supply. Additionally, there are theories suggesting that the group aims to penalize those producers who have historically surpassed their output targets. Overall, this shift in policy may bring forward the anticipated surplus in the oil market for this year.
In the metals market, the outlook has significantly deteriorated as copper and other industrial metals have experienced a slump due to fears over trade tariffs. While gold and other precious metals were exempt from the new tariffs, overall sentiment remains shaky. A global trade conflict casts a shadow over demand for industrial metals, particularly for copper. Gold also saw a decline after reaching a record high, as profit-taking took hold.
Nevertheless, ongoing geopolitical tensions and central bank purchases could provide support for gold prices in the future. The influence of tariffs on China’s economy looms large, with higher-than-expected U.S. tariffs potentially dampening growth and inflation. As China has taken a measured approach so far, any sharp escalation could trigger significant domestic stimulus and retaliatory measures, potentially capping the decline in metal prices.