OPEC+ Agrees to 411,000 Barrels Per Day Increase, Despite Russia's Reservations

OPEC+ has agreed to increase oil supply for the third consecutive month, despite reservations from key member Russia. This decision, made during a video conference on Saturday, involves adding 411,000 barrels per day to the market in July. This increase aligns with the planned increments for May and June, marking a significant shift in policy from defending oil prices to proactively lowering them.

The supply increase reflects Saudi Arabia's multiple objectives. These include punishing overproducing member countries like Kazakhstan and Iraq, reclaiming market share from competitors such as U.S. shale oil producers, and meeting U.S. President Donald Trump's demand for lower oil prices. This move is expected to ease the burden on consumers as the Northern Hemisphere enters its peak demand season and helps central banks tackle persistent inflation. However, the market shock poses financial risks for global oil-producing countries, which may face a prolonged period of low oil prices.

Several representatives expressed concern about the pace of OPEC+'s production increase during Saturday's meeting. Due to the confidential nature of the information, representatives requested anonymity. Russia, Algeria, and Oman advocated for a pause in the increase. As two of the most influential members of OPEC+, the divergence between Moscow and Riyadh will be highlighted again on July 6, when they meet to discuss August's production levels.

In April, when OPEC and its allies first announced a tripling of the planned production increase, oil prices briefly fell to a four-year low of below $60 per barrel, despite weak demand and Trump's trade war impacting the market. Although Brent crude futures have since recovered to around $64 per barrel, the International Monetary Fund estimates that Saudi Arabia needs oil prices above $90 to cover its ambitious spending plans. The country faces a surging budget deficit and has been forced to cut investments in flagship projects like Neom.

Market analysts view Saturday's agreement as a slightly positive signal, as there were concerns before the negotiations that the production increase could be larger. If Riyadh attempts to use "controlled pressure" to punish members who violate quotas, this strategy appears to be ineffective so far. Kazakhstan is the most blatant violator, with its daily production consistently exceeding the limit by hundreds of thousands of barrels, and has publicly stated no intention to correct this. The country's energy minister, Yerlan Akhmetov, told reporters on Thursday that Kazakhstan cannot force international corporate partners to cut production or reduce output from state-owned oil fields.

The drop in oil prices has already impacted core U.S. shale oil production areas. Despite Trump's promise that the U.S. would "drill to its heart's content" in the next energy boom, companies like Diamondback Energy have indicated that production has peaked.

With the July production increase plan in place, OPEC+ has completed more than half of its plan to restore 2.2 million barrels per day of idle capacity over the years, a plan previously expected to last until the end of 2026. In the coming months, the organization will decide how quickly to restore the remaining market supply. Some analysts argue that increasing supply makes sense. In the coming months, the U.S. will see a driving peak due to summer vacations, and the Middle East will see increased domestic consumption due to peak air conditioning use.

"Current fundamentals are strong — inventory levels are extremely low," said Amrita Sen, head of research at Energy Aspects, in an interview before the meeting. "This is a good time for OPEC+ to increase supply to the market, and I don't think they will refuse." However, oil prices may fall further. Morgan Stanley predicts that as OPEC+ increases production, exacerbating global oversupply (daily oversupply exceeding 2 million barrels), Brent crude futures will fall to the "high end of the $50 range" later this year.