OPEC+ Expected to Boost Oil Supply by 60% in June

Oil traders anticipate that Saudi Arabia will lead OPEC+ in agreeing to further increase oil supply during a video conference scheduled for May 5. This move comes as a continuation of Saudi Arabia's efforts to penalize OPEC+ members who have exceeded their production quotas. Approximately 60% of traders and analysts surveyed expect that the major member countries of OPEC+ will agree to significantly increase oil production in June, surpassing the originally planned increments. This would mark the second time Saudi Arabia has pushed for an unexpected increase in production this month, following an earlier decision to boost output by 411,000 barrels per day in May, which was three times the planned amount.

This decision by Saudi Arabia was aimed at lowering oil prices to punish members such as Kazakhstan and Iraq, who had exceeded their production limits. The move also has political undertones, as Saudi Arabia seeks to strengthen its relationship with the United States, particularly with President Trump, who has repeatedly called for OPEC to lower fuel costs. Additionally, Trump is working towards a nuclear agreement with Iran, a regional rival of Saudi Arabia.

The global oil market is facing a dual challenge: the potential for a second large-scale increase in production by OPEC+ and the impact of trade wars on oil prices. The trade wars have led to significant concerns about demand, causing oil prices to plummet to their lowest levels since November 2021. This decline has been exacerbated by the recent announcement of comprehensive tariffs by the U.S., which has intensified the trade conflict and pushed oil prices to a four-year low.

Despite the efforts to penalize quota violators, the strategy has had limited success. While Iraq has pledged to reduce its oil exports, Kazakhstan's international partners, such as Eni SpA, have not been asked to cut production. The drop in oil prices has provided some relief to consumers and central banks still grappling with inflation, but it has also created financial strain for oil-producing countries. Producers are now facing the challenge of balancing the need to increase supply to maximize revenue with the financial pressures they are under.

In response to the current market conditions, some oil producers have already begun to scale back their drilling operations to avoid a price war. Consulting firms like Rystad Energy have significantly reduced their forecasts for U.S. onshore oil growth. Even Saudi Arabia, which requires oil prices to be around $90 per barrel to cover government expenditures, is feeling the pinch. As a result, increasing supply to maximize revenue may be the best strategy for producers in the current environment.