OPEC+ set to discuss July oil output hike, may be larger than 411,000 bpd, sources say

OPEC+ is considering a larger-than-planned oil output increase for July, potentially exceeding the 411,000 barrels per day (bpd) hike implemented in May and June, according to sources familiar with the discussions. The group's strategy, led by Saudi Arabia and Russia, aims to address over-producing allies and regain market share, with Kazakhstan's refusal to cut production potentially influencing the decision towards a larger increase. While some members are being asked to temper their increases to compensate for exceeding quotas, the final decision remains uncertain, with analysts suggesting the 411,000 bpd hike is still the most likely outcome.

Analysis

OPEC+ is poised to decide on July oil output levels this Saturday, with indications from sources suggesting a potential increase exceeding the 411,000 barrels per day (bpd) hikes seen in May and June. This potential for a larger supply increment is driven by a strategy from key members, Saudi Arabia and Russia, aimed at penalizing over-producing nations within the alliance and regaining market share. Kazakhstan's recent declaration that it will not reduce its production, which has been consistently above its OPEC+ target, is a significant factor that could sway discussions towards a more substantial output increase. Despite eight OPEC+ countries already raising output more rapidly than planned, which has exerted downward pressure on oil prices (recently falling to a four-year low below $60 per barrel before recovering to just under $63 on Friday), the outcome of the meeting remains uncertain. Some internal sources and external analysts, such as RBC Capital Markets, still view a 411,000 bpd hike as the likely scenario. The current series of production increases, initiated in April, is part of a broader effort to unwind approximately 2.2 million bpd of voluntary cuts by eight leading member states, highlighting ongoing efforts to rebalance the market amidst internal compliance challenges and strategic repositioning.

Key Decisions for Investors

• Investors should closely monitor the OPEC+ meeting outcome on Saturday, as a decision to increase oil output by more than the anticipated 411,000 bpd could exert further downward pressure on crude prices.
• Given the uncertainty and the stated intent of some members to increase supply to regain market share and address overproduction, investors should prepare for potential heightened volatility in oil markets and energy-related assets.
• Consider adjusting positions to account for a potentially more bearish oil price environment if a larger-than-expected supply increase materializes, while remaining aware that a more conservative hike could also be adopted, reflecting the divided views within the group.