OPEC+: increase in oil production despite the fall in courses

Eight member countries of OPEC+ announced on Saturday a sharp increase in oil production for June, accelerating the rhythm of reopening of valves at the risk of closing already very low lessons.

Saudi Arabia, alongside Russia and six other cartel members, will get out of the ground 411,000 barrels per day, as in May, according to a press release, while the initial reintroduction plan provided for an increase of only 137,000 barrels.

“After the signal of last month, today’s decision sends a clear message: the group changes its strategy and seeks to regain market share after years of cuts,” he continues. A turnaround that also allows “weaving good relations with the United States of Donald Trump”, according to the analyst.

Shortly after taking office, the American president had asked Saudi Arabia to produce more to lower the prices of black gold.

The members of the Organization of Petroleum Exporting Countries (OPEC), led by Riyadh, and their allies led by Moscow, in 2016 formed an agreement called OPEC+ to better weigh on the market. These 22 countries, mostly very dependent on the oil windfall, played until recently on the scarcity of the offer to boost prices, keeping in reserve millions of barrels.

After repeating the reintroduction of these volumes several times, they started the process in early April and now press the accelerator.

Such an increase in production, despite already very low prices on the market – around 60 dollars per barrel – may aim to “punish cheaters” among OPEC+members, those “who do not respect their quotas”, estimates Arne Lohmann Rasmussen, of Global Risk Management.

However, these internal dissensions do not alone explain the decision of OPEC+, which can also be motivated by the desire to anticipate the potential geopolitical developments.

Because if discussions on Iranian nuclear and the search for a lasting ceasefire between Russia and Ukraine are leading, the United States could soften its sanctions against Moscow and Tehran, allowing the export of new barrels.

In this context, OPEC+ prefers to advance its pawns by increasing its production quickly. This strategy could however accentuate the withdrawal of black gold courses, enough to endanger American players in the sector. The production would no longer be profitable for them “below 55 dollars over an extended period,” explains Ole Hvalbye, analyst at SEB. Saudi Arabia could therefore be “testing” the influence it has on the courses, to send the signal to the market that it “can produce whatever price”.

Donald Trump’s power to power in the White House in January marked a turning point for lessons. The barrel, which was exchanging around the $ 80, has been plummeting since due to the darkening of economic prospects.

The trade war between the United States and China, the two main oil consumers, notably helped to reduce demand forecasts, causing a drop in prices at more known levels since February 2021.