Oil-producing countries within OPEC+ will ratchet up production, causing oil prices to plummet and placing an inevitable strain on the Russian economy.
OPEC+ Member Countries Agree on Third consecutive Boost in Oil Production
In a move aimed at supporting oil market stability, member states of the OPEC+ cartel have agreed to increase oil production by 411,000 barrels per day, marking the third consecutive monthly increase. This decision, confirmed at a video conference held on May 31, is part of a gradual plan to return 2.2 million barrels per day of voluntary production adjustments.
The commitments made at this meeting follow closely on the heels of similar increases in May and June. This continued increase signals a clear departure from OPEC+'s efforts to maintain global oil prices, which have previously been the focus of the alliance.
During the conference, representatives of key countries, including Saudi Arabia, agreed to boost oil production and supply to the market. An analyst at Rystad Energy A/S, Jorge Leon, commented that the alliance "is no longer whispering. May hinted, June spoke clearly, and July arrived with a megaphone."
However, dissenting voices were heard from the Russian Federation, which expressed opposition to the increase in production. This stance could be attributable to Russia's significant dependency on oil prices and its efforts to maintain high prices.
Anonymous delegates offered various explanations for Saudi Arabia's shift in policy, which has long defended high oil prices. These include an attempt to "appease" U.S. President Donald Trump by yielding part of the market to American shale drilling companies and other competitors, meeting high oil demand, and penalizing OPEC+ members for exceeding their oil production quotas.
The decision to increase oil production reflects healthy market fundamentals, such as low oil inventories. This move is designed to provide an opportunity for participating countries to achieve full conformity with their commitments, while also ensuring economic benefits for member states, assuming global demand remains stable or increases.
By gradually increasing supply, OPEC+ aims to stabilize global oil prices, which can help maintain economic stability and reduce inflationary pressures. However, the actual impact on prices will depend on factors like global demand and geopolitical events.
In April of this year, oil prices fell to a four-year low below $60 per barrel following news that key OPEC+ countries had announced a threefold increase in production compared to previously planned volumes. Despite this, OPEC+ representatives reassured that their strategy is to support the market while ensuring stable prices for consumers and producers alike.
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The OPEC+ alliance, following their previous increases in May and June, has agreed to boost oil production further, signaling a departure from their emphasis on maintaining oil prices. This decision was confirmed at a video conference by members like Saudi Arabia, who are aiming to increase their oil supply to the market. Meanwhile, Russia, with its significant dependency on oil prices, expressed opposition to the production increase.
