Oil prices fell as OPEC+ members plan to hike production for the third time in July, which is set to be discussed during their upcoming meeting. The output hike is expected to be a 411,000 barrels per day increase for July, triple the amount initially planned. ⁽¹⁾
Eight key OPEC+ nations will hold a video-conference on June 1 to settle July production levels. The full 22-nation alliance will also hold a set of virtual meetings on May 28, where it will have the opportunity to review underlying production quotas for 2025 and 2026. ⁽²⁾
Saudi Arabia Pushes for Production
While OPEC+ says the supply increases are to satisfy demand, officials have privately proffered a range of motives, from punishing over-producing members to recouping market share and placating President Donald Trump. Saudi Arabia’s planned output increases could soon push US oil production to pause due to lower oil prices.
Due to the launch of Trump’s trade war in April, the surprise supply hikes from OPEC+ initially weighed heavily on oil prices.
Group leader Saudi Arabia warned members such as Kazakhstan and Iraq at their last meeting that it could deliver further production increases unless they fall in line with their quotas. Despite some promises, Kazakhstan have made little effort to rein in international oil companies operating in the country and continue to export near record levels. ⁽³⁾
Source: Trading Economics
The chart shows Saudi Arabia alone produced 9 million barrels per day, which could explain why the kingdom is dedicated for pushing for more production to remain the main exporter.
US Inventory Surplus
Oil prices also came under pressure from renewed oversupply concerns after the EIA reported an unexpected increase in US crude stockpiles last week, while gasoline and distillate inventories also rose.
US crude oil inventories surged 1.4 million barrels to 443.2 million barrels for the past week, stated by the EIA. ⁽⁴⁾
Crude oil production decreased by 17,000 barrels per day to 13.4 million barrels per day, the EIA reported. Crude oil imports jumped 125,000 barrels per day to 5.87 million barrels per day while crude oil exports declined 10,000 barrels per day to 3.75 million barrels per day. ⁽⁵⁾
Market Sentiment
Many analysts are forecasting more bearish pressure on oil prices this year. The IEA projected that global demand for oil might slow due to global uncertainty. ⁽⁶⁾
Goldman Sachs forecast that OPEC+ might halt further output hikes after they agree on an increase for July. ⁽⁷⁾
Another catalyst for the bearish sentiment was a broader sell-off across financial markets, driven by concerns over the growing US deficit.
Meanwhile, investors closely monitored developments ahead of the fifth round of nuclear talks between the US and Iran this weekend. The talks helped ease fears of potential supply disruptions in the Middle East, following media reports on rising tensions in the Middle East.
