Oil jumps 1.8% as OPEC+ sticks to slow unwind, lifting Shell and BP

Brent crude rose 1.8% to over $65 a barrel after OPEC+ agreed to maintain its gradual increase in oil supply, adding 411,000 barrels per day in July, which is the third monthly step in a controlled unwind that began in April. UBS noted the market welcomed the decision not to accelerate output amid rising demand due to hotter weather and increased travel, while some OPEC+ members are already pumping above their official limits. Energy stocks also benefited, with Shell and BP shares trading higher following the announcement.

Analysis

Brent crude experienced a notable 1.8% increase, surpassing $65 per barrel, following OPEC+'s confirmation of a continued gradual approach to augmenting oil supply. The alliance will proceed with its pre-announced schedule, adding 411,000 barrels per day in July, marking the third phase of a controlled supply unwind initiated in April. According to UBS, this decision was well-received by the market, which had anticipated a potentially more aggressive output hike. The sustained discipline from OPEC+ occurs amidst a tight physical oil market, which UBS believes can absorb the incremental supply. Demand is being bolstered by increased power generation needs in the Middle East due to hotter weather, alongside anticipated rises in consumption from summer travel and religious pilgrimages. A critical factor tempering the impact of increased quotas is that some OPEC+ members are reportedly already producing above their official limits, suggesting the actual net increase in global supply might be less significant than headline figures imply. Furthermore, low oil inventories and recent supply disruptions, such as those in Canada and a potential for unrest in Libya, provide additional support for current price levels. UBS maintains a forecast for Brent crude at $68 per barrel through mid-2026. However, the bank also highlights potential headwinds, including the seasonal easing of demand later in the year, persistent trade tensions, or a faltering in global demand growth, which could exert downward pressure on prices. In the immediate aftermath, energy equities responded positively, with Shell PLC shares rising 1.2% and BP PLC shares up 1% in an otherwise subdued broader market.

Key Decisions for Investors

• Investors may find the current environment supportive for maintaining or cautiously increasing exposure to oil producers and energy-related equities, given OPEC+'s disciplined supply management and the tight physical market.
• Monitor upcoming OPEC+ meetings and actual production figures, as deviations from the gradual increase strategy or significant overproduction by member states could alter market dynamics.
• Closely track demand indicators, such as global economic growth, travel recovery, and seasonal consumption patterns, as well as geopolitical developments and trade tensions, which UBS identifies as key risks to the current oil price outlook.