OPEC+ Cranks Up Crude Production, Eyeing Market Dominance
Increase in Oil Production: OPEC+ Boosts Output by an Additional 411,000 Barrels Daily
Oil cartel OPEC+ has decided to ramp up production, despite dwindling oil prices, in a move that appears to be a calculated attempt to secure market dominance in a challenging economic climate.
On the weekend, eight of OPEC+'s key members - Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman - convened, increasing collective production for July by an additional 411,000 barrels per day. The group, led by Russia and spearheaded by Saudi Arabia, pointed to "healthy market fundamentals and low oil inventories" as the reasons for the increase.
This production hike marks the third consecutive increase of 411,000 bpd announced by OPEC+. In May, the group agreed to boost oil production for the second month in a row, increasing output for June by the same volume. By July, the combined production increases for April, May, and June will reach 960,000 bpd or approximately 44% of the 2.2 million bpd of agreed cuts since 2022. The latest increase implies a more significant unwinding of over 1.37 million bpd (or 62%) from July.
In a statement, OPEC+ hinted at potential pauses or reversals in production increases based on evolving market conditions, promising to continue supporting oil market stability. The group is set to meet again on July 6 to establish production levels for August, coinciding with a major industry event known as OPEC's International Seminar, hosted every two years. Given the current economic climate, analysts expect another production increase in August.
OPEC+'s decision is largely driven by two overarching objectives.
- Market Expansion: In an effort to increase market share at the expense of non-OPEC producers, especially U.S. light sweet crude suppliers, OPEC+ is aiming to capitalize on the economics of lower production costs associated with conventional crude oil compared to shale oil.
- Internal Discipline: OPEC+'s heavyweight and de facto leader, Saudi Arabia, is targeting errant overproducing member countries, such as Iraq and Kazakhstan, which have repeatedly exceeded their production quotas. The increased output serves as a deterrent to these countries and non-OPEC competitors who might stray from their respective production targets.
A glut on the horizon is likely if prices remain low due to increased production from OPEC+, as well as from non-OPEC producers like the U.S., Brazil, Canada, and Guyana. Elevated oil inventories persist, according to the IEA, with market data indicating continued growing storage levels. This development may lead to significantly squeezed profit margins for the entire oil industry. In light of these circumstances, several investment banks and forecasters are revising their oil price forecasts downward, while the International Energy Agency anticipates a market surplus.
Although stricter compliance and production cuts could help OPEC+ counteract the looming glut, the uncertainty and volatility introduced by the current production strategy could impact both short-term and long-term price stability. In other words, the ongoing tussle for market share at lower prices could persist.
In accordance with the OPEC+ decision to increase production, industry analysts are revisiting their oil price forecasts for 2025 and 2026, considering the potential for reduced profits across the oil industry due to increasing production levels from both OPEC+ members and non-OPEC producers, such as the United States, Brazil, Canada, and Guyana. The finance sector, including Wall Street, is closely monitoring oil market news and oil demand forecasts for 2025, as the surplus of oil in the market could lead to increased volatility in the energy market.
