Crude Oil WTI Futures rebounded Tuesday, following a slump a day earlier when major oil producers announced plans to ramp up production in the coming months, but the bears may soon retake the reins, Scotiabank (TSX:BNS) says, warning of a supply surplus.

"The latest OPEC+ June quota increase of another 411,000 barrels per day will further pressure the already weakened oil market," Scotiabank analysts said in a recent note.

The analysts expect that as Saudi Arabia ramps up production to its new quota, global supply could exceed demand by up to 1 million barrels per day for the rest of 2025 and into 2026.

While the new quota increase still falls short of actual March production levels, Scotiabank forecasts that the decision will nonetheless lead to a sharp output increase-primarily from Saudi Arabia.

"Outside the Kingdom, however, we don't think Algeria, Oman and Russia will be able to raise their output much from current levels. On the other hand, we also don't expect other members, particularly among the large quota busters such as Kazakhstan, Iraq and UAE, will adhere to their new quota and compensation plan by reducing production," the analysts said.

Scotiabank highlights that compliance remains a challenge, with some members such as Kazakhstan, Iraq and the UAE likely to continue overproducing despite official targets. "We are skeptical that these three countries will have the political willingness to cut their production that steep [in the] absence [of] another sharp plunge of oil prices," it added.
With this bearish backdrop and expectations for a supply surplus, Scotiabank believes that "the oil market probably will not bottom until late 2025/early 2026 at the earliest."

For major producers to reverse course on current production plans, a much further slump in prices may be needed.

Brent prices may need to fall into the $40s or below before "the Fear factor fully kicks in and forces all members back to the negotiation table to settle respective production disputes," the analysts said.

Until then, Scotiabank warned that "there is higher risk of the market to overshoot on the downside over the next 12 months."

Source: Investing.com