On Saturday, OPEC+ members agreed to boost oil supply by an additional 411,000 barrels per day in July, marking the alliance’s third consecutive significant production increase. This aggressive move underscores a strategic pivot towards regaining market share and penalizing those exceeding production quotas.
Following the virtual meeting, OPEC+ released a statement citing a stable global economic outlook and the current healthy market fundamentals—reflected in lower oil inventories—as rationale for the July output hike.
Despite the potential for excess supply to weigh on crude prices, OPEC+ continues its expansion. This follows previous decisions in May and June to increase output by 411,000 barrels per day in each month.
OPEC+ officials suggest that the production boosts reflect Saudi Arabia’s strategy to sanction overproducing members like Kazakhstan and Iraq, reclaim market share lost to U.S. shale producers and other rivals, and fulfill Trump’s desire for cheaper oil.
“The decision today really underscores that market share is the name of the game for OPEC+,” noted Harry Tchilinguirian, analyst at Onyx capital Group. “If price isn’t giving you the revenue you want, then they hope volume will do the job.”
With OPEC+ controlling roughly half of the world’s oil production, these increases put pressure on all producers, particularly U.S. shale companies.
Jorge Leon, an analyst at Rystad Energy who previously worked at the OPEC Secretariat, said that the three consecutive moves by OPEC+ have had a significant impact on the market and also sent a warning to other competitors.
Since April, OPEC+ has announced a collective production increase of 1.37 million barrels per day, offsetting approximately 62% of the 2.2 million barrels per day production cut in place.
Some member nations expressed reservations about the pace of OPEC+’s production increases during the Saturday meeting. Representatives indicated that Russia, Algeria, and Oman favored pausing further hikes.
Brent crude is currently trading around $62 a barrel, nearing its lowest level in four years, amid concerns about a global economic slowdown sparked by escalating trade tensions.
While the OPEC+ action may provide relief to consumers as the Northern Hemisphere enters peak demand season, and could, in turn, assist central banks in their fight against stubborn inflation, it also presents financial risks for oil producers globally, who may face prolonged periods of low prices.
Low oil prices threaten U.S. shale producers, with companies like Diamondback signaling their potential inability to fulfill the “drill, baby, drill” vision of a new era of American energy dominance.
“The current market fundamentals are strong, inventories are very low, and it’s a great time for OPEC+ to increase production,” according to Amrita Sen, Head of Research at Energy Aspects.
JPMorgan predicts that, given the ongoing production increases by OPEC+, oil prices could fall further, potentially reaching around $50 per barrel by year-end, due to the resulting global oversupply.
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