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OPEC+ is proceeding with another substantial increase in oil supply, signaling a definitive shift in its production strategy. This increase, slated to take effect in June, marks a significant departure from previous policies. Warren Patterson, a commodity expert at ING, observes that the potential for further large supply increases in the coming months has prompted a downward revision of their oil price forecasts. This adjustment reflects concerns about the impact of increased supply on market prices, particularly given existing uncertainties in global demand.
Saudis may have to cut spending and/or tap debt markets
“Saudi Arabia is likely the primary instigator behind these larger-than-scheduled supply increases, potentially as a measure to address instances of non-compliance within the OPEC+ alliance, specifically targeting members who have consistently exceeded their designated production quotas. The OPEC+ group surprised market participants in April by announcing a supply increase of 411,000 barrels per day (b/d) for May, exceeding the previously planned increase of 135,000 b/d. Over the past weekend, the group opted for a similarly assertive approach, implementing a comparable supply increase for June,” a source familiar with the matter stated. This aggressive stance suggests a willingness to prioritize market share and discipline within the organization, even if it potentially impacts short-term revenue.
“Initially, the OPEC+ agreement stipulated the gradual return of 2.2 million barrels per day (b/d) of supply to the market over an 18-month period, extending through September 2026. However, within a span of just three months, the group has resolved to reinstate nearly 1 million b/d of supply. The oil market is currently navigating a period of considerable demand uncertainty, largely driven by concerns surrounding potential tariff escalations and broader geopolitical risks. This shift in OPEC+ policy introduces an additional layer of complexity and unpredictability to the supply side of the equation. Compounding this uncertainty is the group’s decision to determine output levels on a month-by-month basis. OPEC+ is scheduled to convene on June 1st to determine output levels for July, adding to the short-term volatility and requiring market participants to closely monitor the group’s decisions and their potential impact on global oil prices. Market analysts will be closely watching indicators such as inventory levels and refining margins to assess the true impact of these supply increases.”
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