OPEC+ delegates anticipate that the group’s upcoming monitoring session next month will be a standard affair, with no modifications to the planned supply increase scheduled for the fourth quarter.
Planned Supply Hike and Market Rebound
The group, led by Saudi Arabia and Russia, agreed last month to gradually restore approximately 2.2 million barrels per day (MMbpd) of previously halted crude oil production starting in October.
While prices initially dipped after the announcement, officials emphasized that a committee convening on August 1st could postpone the increase if necessary.
Since then, the market has recovered, with Brent futures trading near $85 a barrel, alleviating the group’s sense of urgency. Delegates, speaking on condition of anonymity, confirmed that there are no plans for the Joint Ministerial Monitoring Committee (JMMC) to issue any recommendations on output policy.
Flexibility in Decision-Making
This leaves OPEC and its allies with several weeks to deliberate on whether to proceed with the supply boost, theoretically until cargo allocations need to be finalized for customers in early September.
This approach aligns with previous decisions made by the eight OPEC+ members involved in the “voluntary” cutbacks.
Market Dynamics and Demand Outlook
“OPEC+ will most likely wait and see if the anticipated demand increase this summer materializes before making any decision on production,” noted Jorge Leon, senior vice president at consulting firm Rystad Energy AS.
The coalition has been curbing supplies for nearly two years to bolster crude prices by averting a surplus threatened by rising American production.
Their intervention has achieved some success, pushing the market into an expected deficit this quarter and stabilizing a crucial revenue source for the group.
Internal Differences and Russian Commitments
While members like the United Arab Emirates have been eager to restore halted production and utilize new capacity, others like Russia, Iraq, and Kazakhstan have been slower in implementing agreed-upon cuts as they strive to maximize revenue.
Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman recently discussed OPEC+ cooperation, according to a Kremlin statement. Moscow has pledged to compensate for its failure to deliver its share of cutbacks with additional curbs but has yet to provide full details.
Balancing Supply and Demand: Uncertainties Remain
“The consensus is that, if demand increases in the second half of this year, OPEC+ would have room to start unwinding cuts starting in October,” Leon commented.
However, there are still reasons for the group to reconsider the scheduled supply increase. While global inventories are expected to steadily decline this quarter, the International Energy Agency (IEA) forecasts a significant market slowdown as China’s demand growth cools.
Stockpiles are projected to stabilize in the fourth quarter, and supply could even exceed demand next year, even if OPEC+ postpones the planned increase.
“I remain unconvinced that the market will be sufficiently strong for a prolonged period to justify significant OPEC volumes,” stated Aldo Spanjer, commodities strategist at BNP Paribas.