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Eight OPEC+ members, including Saudi Arabia and Russia, announced their second consecutive monthly increase of 411,000 barrels a day in June, despite continued sliding of oil prices due to fears of oversupply and economic debilitation.
The oil cartel surprised the market last month by announcing a surge in production of the same size. The combination of increased supply of OPEC and the fear that US trade tariffs will hold back the global economy has made Brent crude benchmark, the benchmark, at $41, close to $61, five barrels, from April 2nd.
The OPEC+ move shows a major change in approach to bringing more oil into the fall market again, said Jorge Leon, a former OPEC employee at energy consultant Tristad.
“OPEC+ has just thrown a bomb on the oil market,” he said, “Last month’s decision was a wake-up call. Today’s decision is a decisive message that Saudi-led groups are changing their strategy and pursuing market share after years of cutting production.”
Over the past three years, OPEC+ has increased by around 6 million b/d to strengthen prices. This was initially roughly maintained for much of 2022, at over $90 per barrel.
Tensions within the cartel grew in Kazakhstan, which has shown that it would prioritize “national interests” over group quotas, particularly from the Chevron-led Tengisfield.
In response, Saudi Arabia has begun to unravel the production curbs and is driving this month’s increase.
The kingdom, which has cut its own production, which has increased by 2 million b/d over the past three years, is increasingly unhappy with other members consistently exceeding the quota, including Kazakhstan and Iraq.
According to those familiar with the kingdom’s thinking, Saudi officials are now used to reviving supply. It is unclear why Saudi Arabia, which struggles to balance the country’s budget due to lower oil prices, has challenged a new strategy that is likely to lead to a fall in oil prices for the rest of the year.
Some analysts questioned how much oil actually would reach the market. SEB’s chief commodity analyst Bjarne Schieldrop noted that OPEC+ production in April fell 200,000 b/d due to Venezuela sanctions, saying the planned increase could be short if past quota violators such as Kazakhstan, Iraq and the United Arab Emirates received output.
