Oil prices surged Monday in the wake of the OPEC+ decision to stick to its scheduled increase in production next month. Brent crude was up $2.28, or 3.6%, at $65.06 a barrel by 1335 GMT. U.S. West Texas Intermediate (WTI) crude also rose by $2.99, or 4.9%, to $63.78 a barrel. The price surge follows declines of more than 1% for both benchmarks last week.
OPEC+, the coalition of oil producers comprised of Saudi Arabia and Russia, said on Saturday that it would increase production by 411,000 barrels a day (bpd) in July. This is the third straight month of such gains. The group is hoping to win back market share and punish members that have pumped more than their quotas.
Although there was speculation last week that a bigger output increase might be in play, the group stuck with the expected increase. The 411,000 bpd figure was already priced by traders, and analysts say a surprise bigger increase could have sent prices scurrying south. “If they had delivered a larger surprise, surprise, then the price open on Monday would have been pretty ugly,” said Harry Tchilinguirian of Onyx Capital Group.
The move arrives on the heels of indications of internal problems. Kazakhstan, for one country, has declined to reduce output, despite its earlier promise. Kazakhstan was not going to adhere to production cuts, Russia’s Interfax news agency reported yesterday that the country’s deputy energy minister had said. Analysts say oil prices would have to drop below $58 a barrel to make Kazakhstan’s overproduction a losing proposition.
OPEC+ will confirm another 410,000 bpd increase for August, according to Goldman Sachs, which said fundamental support is returning. “Tight spot oil fundamentals, beats in hard global activity data, and seasonal summer support to oil demand mean that the expected demand slowdown is unlikely to be sharp enough to change our view that we will keep raising production,” the bank said. Morgan Stanley shares this view, predicting that the coalition will roll out more incremental increases each month all the way to October, when 2.2 million b/d is replaced.
Political risks are similarly factored into oil prices. Ukrainian drone attacks on Russian targets over the weekend have increased tensions, which energy analysts say is adding to the price support. “We are back to geopolitical risks,” said Jorge Leon of Rystad Energy.
By and large, the mood is cautious. World oil demand is forecast to rise by some 775,000 bpd in 2025, according to the International Energy Agency’s most recent forecast for a lesser gain of 740,000 bpd. For their part, the contrary numbers are increasing only slightly and may be too modest to offset greater supply.
