OPEC+ to Boost Oil Supply Faster Than Expected in August

Bloomberg

5 hours ago

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00:00So, Anthony, yet another surprise from OPEC. They keep surprising us the last couple of months and this time an even bigger than anticipated supply put back to the market. What is the justification from their perspective? Good morning, and nice to see you from London. Yeah, that's right. It was another surprise increase because OPEC had signaled to going into this stretch of increases that they would be putting on to the market just a little bit more than 100,000 barrels a day. But for the last three months, they've been doing more than more than four, 400,000 barrels a day. So they've they've really put three months into one in terms of increases over the last three months. The market was expecting that also in the decision that they took on Saturday, which is for August production. Instead, they've come up with, again, as you said, over half a million barrels a day of increase there. So four months rolled into one. They're saying that there's still demand in the market. In fact, we are seeing a lot of demand for transport fuels because of the summer, because of summer burn in the in the northern hemisphere where people are driving, people are going on vacation. So we are seeing that demand, particularly in fuels like diesel, like gasoline, and that's supporting the crude prices. But but what is the issue going forward for OPEC is that the the market traders, analysts, market participants are forecasting a glut towards the in the second half of the year. So towards the end of the year, we will be having prices going down. Some of the big investment banks like Goldman Sachs are forecasting prices at or below $60 by the end of the year. So we are seeing this glut building and this OPEC increase, this bigger than expected OPEC increase is going to add on to that. Plus, we've got some initial signals coming out from OPEC's that in September they will do a similar move. So that would really unwind this group of voluntary cuts that eight members have taken that we're talking about here, Jomana. Anthony, when OPEC plus put out that statement on Saturday, they referenced a steady global economic outlook, healthy market fundamentals and low inventories, which of course is contrary to the expectations of the market, that by the end of the year, you're going to start seeing those inventories build up. But there's something else that caught my attention yesterday. ARAMCO'S official selling prices, those OSP prices actually increased to all regions around the world. What does that tell you about how Saudi Arabia is feeling about demand? Yeah, it shows that they're really confident about demand. That they're really bullish and that they think it'll be supported because we're looking mainly at Asia when we look at that, because that's where most of the Saudi oil goes. And that increase was they charge a premium and that premium increased by for the main crude grade that goes to Asia. And that was more than expected. So that's a hefty hit for some of those refiners there because they were seeing they were expecting, yes, an increase, but but less than that. So that's going to be added cost for them going forward. So when we see Aramco increasing at the same time as Opec+ is putting more oil into the market, that's a really bullish signal that they are really confident about the market, they're confident about demand, and they're confident that the market can take this up. Right now we do have those good refining margins for the refiners, so they're able to take that oil, refine it, sell it as fuels and make some money. But again, that prospect is going to weaken going into the second half. This is also compounded on last month's OSP decision for Aramco, which was also an increase. And also excuse me, it was a cut, but it was a cut that was smaller than expected in the last month. So the the traders and the refiners in Asia have been really been kind of hit by a double whammy of these these two consecutive stronger than expected pricing decisions and added production. So it's a really a difficult situation for them to navigate. And we are seeing that weakness coming through later in the year, as we said, Jomana.