OPEC+ agreed to surge oil output by 411,000 barrels a day for the third month in a row, doubling down on a historic policy shift that has sent crude prices sinking.
Key nations led by Saudi Arabia agreed during a video-conference on Saturday to add that amount to the market in July, according to delegates. The hike follows equally sized increases scheduled for May and June, marking a clear break with years of efforts by the group to support global oil prices.
“OPEC+ isn’t whispering anymore,” said Jorge Leon, an analyst at Rystad Energy A/S, who previously worked at the OPEC secretariat. “May hinted, June spoke clearly, and July came with a megaphone.”
While there was ultimately a consensus for the July increase, some members expressed reservations. During Saturday’s discussions, Russia was among members that recommended a pause in the supply increases, delegates said, asking not to be named because the information was private.
Oil briefly crashed to a four-year low under $60 a barrel in April after the Organization of the Petroleum Exporting Countries and its allies first announced that they would bolster output by triple the scheduled amount, even as faltering demand and President Donald Trump’s trade war were already crushing the market.
Delegates have offered a range of explanations for the pivot by Riyadh, which had spent years defending high oil prices by restraining supplies.
Officials have suggested the kingdom is trying to appease President Trump, or to reclaim the market share relinquished to US shale drillers and other rivals. Some assert that OPEC+ is simply satisfying robust demand, while others say Saudi Arabia seeks to punish members like Kazakhstan and Iraq for cheating on their output quotas. The ultimate motive may combine several of these objectives.
The strategy transition hasn’t been without a cost. While crude’s pullback offers relief for consumers and central banks grappling with stubborn inflation, it poses financial peril for oil producers in OPEC+ and around the world.
While Brent futures are trading near $64 a barrel, the International Monetary Fund estimates the Saudis need prices above $90 to cover the lavish spending plans of Crown Prince Mohammed bin Salman. The kingdom is contending with a soaring budget deficit, and has been forced to cut investment on flagship projects such as the futuristic city, Neom.
The downturn is also taking a toll in America’s shale oil heartlands, where companies like Diamondback Energy Inc. say production has peaked, despite Trump’s promise the country would “drill, baby, drill” in a new energy boom.
If Riyadh’s strategy is to discipline the cartel’s quota cheats through a “controlled sweating,” it doesn’t seem to be working.
Kazakhstan, the most blatant offender, continues to exceed its limits by several hundred thousand barrels a day and has publicly stated that it has no plans to atone. Energy Minister Yerlan Akkenzhenov told reporters on Thursday that the country can neither enforce cutbacks on international corporate partners, or dial back at state-run fields.
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