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OPEC+ Floods the Market - Now the “Crude” Reality Hits

• OPEC+ is beginning to flood the market with oil just as demand weakens, setting the stage for a price plunge and financial pain across oil-dependent economies.
  
  
• Emerging-market oil bonds are flashing red, U.S. shale is teetering below breakeven, and Saudi Arabia’s grand economic plans are hitting a wall.
  

What you need to know: Last week, eight OPEC+ nations “surprised” markets by announcing a 411,000 barrels-per-day production boost for May - nearly 4x what was expected. This means that Saudi Arabia and the cartel just threw in the towel on supporting oil prices. 

Why it matters: OPEC+ is ramping up supply just as demand forecasts are being slashed and U.S. output has risen dramatically - meaning a supply glut could drive prices even lower – thus deepening the financial strain on oil-dependent countries and companies, especially in emerging markets, and potentially triggering defaults. 

Now the Deep Dive: Analysts were “shocked” when OPEC+ dumped four times the expected oil into the market - basically killing the Saudi-led strategy of cutting to keep prices higher.

But if you read last year’s “OPEC’s Prisoner’s Dilemma: Why Saudi Arabia May Flood the Oil Market (Again)” – you saw this coming. I argued then that with U.S. and Brazil ramping up output combined with cheating within OPEC, the oil cuts would collapse under pressure.

And here we are - oil flooding into a market where demand is already sliding. Even Saudi Aramco – Saudi Arabia’s oil behemoth - slashed prices on its flagship crude, thus undercutting its own cartel.

• It’s basic math: more supply + less demand = cheaper oil.

But here’s what this latest move means to me:

1. Emerging markets and their oil companies that depend on oil to service debts are at serious risk.

• Mexico’s Pemex saw its bonds suffer their worst week since 2020, while Gran Tierra’s debt plunged to record lows¹.
  
  
• Sovereign bonds aren’t spared either, with yields on Angola and Gabon (both highly dependent on oil revenue) shot past 1,000 basis points over U.S. Treasuries, signaling distressed levels.

Be wary of this.

2. U.S. oil prices near $60 are already below break-even for some shale producers (meaning they’re producing at a loss), thus raising the risk of production cuts as margins evaporate.

• If prices stay here, production cuts - and job cuts – are likely coming.
  
  
• That’s 1.2 million U.S. oil jobs at risk, many in Texas².

On the plus side, it also means cheaper fuel for consumers and businesses.

3. Saudi Arabia’s fiscal budget breakeven requires $96.20 per barrel.

• With oil well below that mark, Vision 2030 - the kingdom’s grand plan to diversify away from oil - looks more like Vision 2040 (maybe even 2050)³.
  
  
• Riyadh is doubling down on manufacturing and mining to boost non-oil revenue. But they’re not alone - every major economy is chasing the same thing (that’s what the whole trade war is about).
  
  
• This could result in more global supply, more competition, and likely more downward pressure on prices (which is also good for consumers but bad for producers).

Keep these things in mind.

Figure 1: St. Louis Federal Reserve, April 2025

China’s Export Lifeline Is Fraying - And That Puts 5% Growth in Doubt 

• China’s booming exports and collapsing imports widened its Q1 trade surplus to $273B - underscoring a growing reliance on external demand as domestic consumption falters.
  
  
• With tariffs looming and homegrown demand still weak, Beijing’s 5% growth target may hinge on debt-fueled infrastructure and “growth by mandate,” not genuine recovery.

What you need to know: Chinese exports surged 12.4% year-over-year (YoY) in March, up from 2.3% YoY in Jan–Feb and crushing the 4.6% forecast⁴. However, imports fell -4.3%, dragging Q1 imports down -7.0% YoY. That’s a sharp 16.7-point gap between exports and imports - signaling strong external demand but soft domestic consumption. 

Why it matters: China’s domestic economy remains weak while exports have surged - likely due to a front-run ahead of new U.S. tariffs. Still, this highlights China’s precarious position - it remains heavily dependent on exports to sustain growth. As tariffs begin to bite, China could face serious headwinds. 

Now the Deep Dive: The widening gulf between China’s booming exports and slumping imports is exactly the opposite of what the U.S. (and arguably the rest of the world) wants.

To highlight this: China’s Q1 trade surplus surged to $273 billion - nearly $100 billion higher than a year earlier - driven by booming exports and slumping imports.

And as I’ve said before (yes, I may sound like a broken record), a rising trade surplus often signals weak domestic demand.

• Imports fall because households and businesses aren’t buying. And exports rise because China needs to offload what’s not being consumed at home.

Exports remain the primary engine of China’s growth - not domestic demand - underscoring how heavily the country still leans on the rest of the world to absorb its excess output.

And that strategy works. At least until global demand weakens or tariffs bite - which are both happening now. ..

Keep in mind that even with all this, China is targeting a 5% growth rate for 2025 – which is ambitious under these conditions.

But if domestic consumption remains weak and exports face new barriers, where does the growth come from?

My guess? The old playbook: infrastructure and construction.

• That means more debt-fueled wasteful projects, even as the property sector sits bloated with oversupply and banks are already teetering⁵.
  
  
• It’s not “good” growth - it’s growth by mandate.

Remember: in the U.S., growth is market-driven. GDP will come in at so-and-so, and the government reacts. But in China, it’s politically set.

So, if Beijing says "we are aiming for 5%", then provincial governments will do whatever it takes to hit it - even if that means piling on debt to build even more "ghost cities".

This tension - between soft demand, trade blowback, and policy-driven growth - is something to watch closely in the months ahead.

 Figure 2: ING, April 2025

Shrinking Japan? Population, Tax Base, and Time Are All Running Out 

• Japan’s population crisis is accelerating, with record declines in working-age and child populations tightening the labor market and threatening the country’s social safety net.
  
  
• With a staggering 217% debt-to-GDP ratio and a shrinking tax base, Japan’s long-term fiscal health is under growing pressure - mirroring demographic troubles now spreading across other major economies.
  

What you need to know: Japan’s population shrank by 550,000 last year, highlighting the growing strain of labor shortages and the mounting pressure on its social safety net as the tax base continues to erode. 

Why it matters: Japan’s population fell by 550,000 in 2024 to 123.8 million, marking the 14th consecutive year of decline. The number of Japanese nationals alone dropped by a record 898,000 - the steepest fall since data began in 1950 - underscoring a worsening demographic crisis and intensifying concerns over the long-term sustainability of the country’s social welfare system. 

Now the Deep Dive: The demographic outlook keeps getting worse for the world’s fourth-largest economy.

In short, the population is shrinking as deaths outpace births and longevity increases, amplifying the burden on the country’s already stretched social and welfare systems.

As I noted in "The U.S. Demographic Problem: Why Falling Birth Rates Could Reshape the Economy", fewer births today mean even fewer births tomorrow, compounding the issue over generations.

Just look at some of the worrying data from Japan’s recent release⁶:

1. The working-age population (15 to 64) fell by 224,000 in 2024, dropping to 73.7 million, tightening an already strained labor market. With fewer workers and many staying employed past retirement, the unemployment rate is now a remarkably low 2.58%.
   
   
2. The child population dropped by 343,000 to 13.8 million, or just 11.2% of the total - a record low that underscores Japan’s rapid aging and lack of generational replacement.
   
   
3. Japan’s debt-to-GDP ratio stood at a staggering 217% in 2024 - the highest among developed nations and more than double the U.S. level. But it gets worse because the Bank of Japan (BoJ) holds public debt equivalent to 80% of GDP (essentially printing money to buy massive amounts of government debt). Thus, with fewer young workers to support the economic system, the shrinking tax base only worsens the government debt and BoJ buying.

And while Japan is the poster child for the global demographic strain, it’s not alone:

• Russia’s birth rate may have just plunged to a 200-year low, with February births down 7.6% YoY⁷.
  
  
• China’s population declined for the third straight year in 2024, dropping by 1.39 million to 1.408 billion as deaths continued to outpace births⁸ and compounded a looming demographic crisis.
  
  
• South Korea’s fertility rate ticked up to 0.75 in 2024, the first rise in nine years - but it remains the lowest in the world⁹. The slight rebound is likely a post-pandemic blip, still far below the 2.1 replacement rate despite billions spent trying to reverse the trend.

Remember, at the end of the day, an economy is a social system.

When populations age and shrink, the ripple effects aren’t just fiscal - they’re structural. This will shape global growth, trade, labor markets, and social stability for decades to come.

So keep an eye on these long-term trends.

 Figure 3: Bloomberg, April 2025

Anyway, who knows what will happen?

This is just some food for thought as we watch how these trends develop.

As always, we’ll be keeping a close eye on things. Enjoy the rest of your weekend.

Sources:

1. Tariff Chaos Is Roiling Emerging-Market Debt Tied to Oil - Bloomberg
2. Table B‐ Employees on nonfarm payrolls by industry sector and selected industry detail, seasonally adjusted : U.S. Bureau of Labor Statistics
3. Saudi Arabia’s Next Move Could Hit Oil Prices Hard | OilPrice.com
4. China’s March exports shrugged off early tariffs, but headwinds are intensifying | snaps | ING Think
5. Chinese lenders have a massive challenge: They can't lend enough
6. Japan’s Population Falls by Half Million as Birth Rate Stays Low - Bloomberg
7. Russia’s Birth Rate Plunges to 200-Year Low - The Moscow Times
8. China’s population falls for third year in a row as birthrate declines | Demographics News | Al Jazeera
9. South Korea's policy push springs to life as world's lowest birthrate rises | Reuters

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