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OPEC+ will increase production again next month, as the Saudi Arabian oil cartel is trying to conquer the market share in a move that is likely to put down cruel prices.
Eight members of the producer group, including Saudi Arabia, the United Arab Emirates and Russia, said on Saturday that they would collect production titles in August with combined 548,000 barrels a day, an increase from the planned increase in July 411,000 B/day.
The move accelerates the unveiling of the long -term reduction in production. OPEC+ retained the supply of 2022 in an attempt to raise prices, but changed its policy in April.
The group’s initial plan would increase the exit of titles by 2.2 million B/day over 18 months, but has accelerated the pace of supply in May. It is now likely that it will restore the overall production of “late September”, a year before the initial schedule.
“OPEC+ surprises the market,” said Jorge Leon, a former OPEC employee, now Ristad’s energy consulting services. “This sends a clear message, to anyone who is still doubts, that the group is firmly changing to the market share strategy.”
One of the reasons for the rapid monitoring of production increases is that oil demand is generally stronger during the summer of the northern hemisphere, as a result of the higher activity of the refinery and the summer driving season in the United States and Europe, analysts say.
In the long run, increasing production threatens to add to what most traders expect to be a significant supply surplus by the end of the year that can stimulate prices to less than $ 60 a barrel.
Brent Surova, the global benchmark, cost $ 68 a barrel at the end of Friday’s trading.
Members of OPEC+ and people familiar with the group’s thinking have offered a series of explanations for the commitment of the group’s return, despite the negative impact on the prices. Most agree that the rapid discovery was led in much of Saudi Energy Minister Abdulaziz bin Salman, who believed the burden of cuts was not shared properly.
Saudi Arabia teased most of the reductions, while other OPEC members+ were constantly producing over their quotas, thereby reducing the overall impact of the efforts. By April, Saudi Arabia reduced its production by one fifth over the previous three years to about 9 million B/D, the lowest since 2011, except during the coronavirus pandemic.
Saudi Arabia has tried to restore discipline by agreeing to new overproduction compensation plans, but some OPEC members, especially Kazakhstan, seem to have ignored those directives and continued to pump oil over their quotas.
Because reductions were no longer supported by prices, retaining supply no longer had a sense for Saudi Arabia and other major producers such as the United Arab Emirates, analysts say.
In a double win for the cartel, allowing production to rise and prices to fall also helped Curry favor US President Donald Trump, who repeatedly called for cheaper oil, while injuring US shale producers, who generally need higher prices.
The next question about the oil market is whether the group will move to separating a second set of voluntary reductions, representing 1.65 million B/D capacity, which should remain in place by the end of 2026, Leon told Ristad.
“Two big questions are now hanging on the market,” he said. “Will OPEC+ direct the next degree (of reductions) … And is there enough demand to absorb it?”
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