OPEC Agrees in Principle to Larger Than Expected Increase

Mint

11 hours ago

(Bloomberg) -- OPEC has agreed in principle to further accelerate its supply increases next month, delegates said, as the group led by Saudi Arabia seeks to reclaim market share.
Eight key alliance members are expected to approve a larger-than-expected hike of about 550,000 barrels a day at a virtual meeting on Saturday, the delegates said. The group previously announced increases of 411,000 barrels for each of May, June and July — already three times the level originally planned — and traders had expected the same level for August.
The move builds on an assertive strategy pivot by the Organization of the Petroleum Exporting Countries and its partners to accelerate the revival of curtailed production, despite the risk of a global oversupply that could further pressure prices. Since April, the group has shifted from years of output restraint to reopening the taps, surprising crude traders and raising questions about the group's long-term strategy.
OPEC is boosting production into a market that is widely expected to be oversupplied later in the year. The accelerated increases are coming alongside rising supplies elsewhere and an uncertain demand outlook as President Trump's trade war threatens to rattle the global economy.
However, the market looks more robust in the immediate term, and some delegates said the group is speeding up its production revival in part to take advantage of stronger demand during the northern hemisphere summer.
In the months following the strategy pivot, delegates have offered a range of explanations for the shift: from satisfying peak summer fuel demand, to punishing the group's over-producing members and regaining sales volumes ceded to rivals like US shale drillers. Officials say Riyadh is especially eager to restart more idled capacity as quickly as possible.
The larger August increase would allow OPEC to complete the return of 2.2 million barrels a day of previously halted output by September with another hike around the same level. The coalition may discuss September plans at Saturday's online meeting, according to a delegate.
Still, the impact of the larger increase will likely be lower — the group has produced below the figures announced in previous months as Saudi Energy Minister Prince Abdulaziz bin Salman presses some members to compensate for earlier over-supply and forgo their share of the increases. Kazakhstan — the most egregious offender — continues to pump hundreds of thousands of barrels above its quota.
Crude traders had widely expected OPEC to ratify another hike of 411,000 barrels day for August — in keeping with the previous three months. Delegates' initial discussions this week also focused on that level, Bloomberg reported on Thursday.
The extra barrels may be welcomed by President Trump, who has repeatedly called for lower oil prices to bolster the US economy, and needs to stave off inflation while pushing the Federal Reserve to lower interest rates.
Yet the flood also threatens to swell an emerging supply surplus. Global oil inventories have been accumulating at a pace of about 1 million barrels a day in recent months, as consumption in China cools while production climbs across the Americas, from the US to Guyana, Canada and Brazil.
Markets are headed for a substantial surplus later this year, according to the International Energy Agency in Paris. Wall Street firms such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. anticipate that prices will sink towards $60 a barrel or lower in the fourth quarter.
By pushing for faster supply increases, Saudi Arabia must balance the benefits of higher sales volumes with the impact of falling oil prices. The kingdom is already grappling with a soaring budget deficit, and has been forced to slash spending on some of Crown Prince Mohammed bin Salman's flagship projects.
OPEC co-leader Russia is confronting a deteriorating economic outlook and potential banking crisis as President Vladimir Putin continues to wage a costly war against neighboring Ukraine.
The drop in prices is also spreading pain through the American shale industry. In a recent survey, US shale executives said they expect to drill significantly fewer wells this year than planned at the start of 2025, citing lower oil prices and uncertainty around Trump's tariffs.
--With assistance from Fiona MacDonald.
(Updates with details and background throughout)