In a surprise move, OPEC+ has announced that it will raise its target production level by 548,000 barrels per day (bpd) for August.
The OPEC+ grouping comprises members of the OPEC cartel together with some non-member oil-producers. In recent months, it has been unwinding 2.2 million bpd in voluntary cuts by some members, with monthly production increases of 411,000 bpd in May, June and July. Market players had generally expected a similar increase for August following a video conference between alliance members.
If the group makes another similar production increase for September, it will completely reverse the 2.2 billion bpd in voluntary cuts. Onyx Capital Group’s research group head, Harry Tchilinguirian, said about this:
“With OPEC+ having pivoted to a market share over a price defence strategy, it was pointless to keep a notional voluntary cut in place. It was best to get it over and done with it, and simply move on.”
In addition, some OPEC+ members have been producing over their quotas. Kazakhstan, for example, has been producing well above its quota, with its government recently admitting that it couldn’t impose production limits on projects led by foreign oil companies. Chevron, the maker of the Texaco grease and lubricant products, recently contributed an extra 140,000 bpd to the country’s total with its expansion of the large Tengiz field.
Strong summer demand in the northern hemisphere may absorb the increased production, but analysts are suggesting that oil prices could drop below $60 per barrel towards the end of the year.
