At the weekend, the group of eight Opec+ oil producers decided to continue their sped-up path towards unwinding their so called “voluntary cuts” in July by adding another 411,000 barrels per day of output.
The result: oil prices rose by about 3 per cent when markets opened on Monday. So, what led to this contradictory reaction and what does it mean for the group’s policy in the months to come?
This seemingly counterintuitive price reaction, which saw Brent trade above $65 a barrel, was partly driven by earlier market speculation that the group might opt for a more aggressive production hike. This led to a brief sell-off before the weekend. Once the expected 411,000 bpd increase was confirmed, market sentiment shifted positively. Additionally, concerns over potential supply disruptions from Canadian wildfires added upward pressure to prices.
According to delegates, the price surge was well-received within the group, particularly by members wary of further declines. However, the direction of future policy remains uncertain. Opec+ has emphasised that its August strategy will be shaped by evolving market conditions, with all options – ranging from continuing the current path to more conservative adjustments – on the table.
Opec+ policy
Given that this is the third accelerated increase by Opec+ to unwind the 2.2 million bpd voluntary cuts, there’s misconception over why the group is doing this. Common reasons cited include the need for Saudi Arabia and other Gulf states to appease US President Donald Trump and his call for $50 oil, or the shift in policy from defending prices to going after market. Both these explanations receive pushback from officials.
The driver behind the policy, which often doesn’t gain traction due to its less glamorous appeal compared to a US political dynamic, is keeping cohesion within the group. Leading members within that Opec+ eight realised that lack of compliance from Russia, Iraq and Kazakhstan to their production quotas was starting to contribute to a stock build. So, for the other members to sit on their laurels and do nothing was no longer an option. To restore a sense of fairness, an orderly plan to return the barrels gradually was needed to avoid a free-for-all situation that would drown the market in supply.
Historical precedent supports this approach. The 2020 oil price war, which started when Russia declined a proposed production cut, ultimately led to the largest cut in Opec+ history – 10 million bpd – and a renewed commitment to group co-operation.
Ensuring compliance is also essential to preserving Opec+’s market credibility, particularly if future conditions necessitate a pause or new round of cuts. This weekend’s discussions underscored this point, as Russia and Oman advocated for pausing the planned increases. However, consensus was quickly reached to proceed with the 411,000 bpd surge, which was the only formal alternative discussed.
Production outlook
At present, there appears to be limited support for pausing or deepening production cuts. However, if rising inventories or weakening demand become evident, a smaller increase or even a temporary pause could be considered. Contrary to the misconception by many traders and observers in the market, oil prices dropping to $40 or $50 a barrel is not a level that would please any of the Opec+ producers, let alone the wider industry. Therefore, this idea that the alliance supports a crash in oil prices does not hold.
Looking at the here and now of the current policy, which involves increments of 411,000 bpd for the months of May, June and July, it presents a good window for the group to reinstate output as demand during these hot summer months rises − which in turn would buffer the impact of the increase. Summer driving season in the northern hemisphere and Hajj season in Saudi Arabia are further demand pockets that would absorb the additional barrels.
Looking ahead, Moscow’s influence may play a larger role in shaping decisions. Still, for now, all members appear committed to preserving the alliance, recognising its value in maintaining market stability.
The late Opec secretary general Mohammed Barkindo once described members of Opec+ being in a “catholic marriage” – binding and enduring. Another Opec+ official once openly told me that many marriages are not perfect, but the spouses stay “because of the kids … and in Opec’s case, it’s because of the oil”.
Amena Bakr is the head of Middle East Energy & Opec+ research at Kpler, an independent global commodities trade Intelligence company
Indoor Cricket World Cup Dubai 2017
Venue Insportz, Dubai; Admission Free
Fixtures - Open Men 2pm: India v New Zealand, Malaysia v UAE, Singapore v South Africa, Sri Lanka v England; 8pm: Australia v Singapore, India v Sri Lanka, England v Malaysia, New Zealand v South Africa
Fixtures - Open Women Noon: New Zealand v England, UAE v Australia; 6pm: England v South Africa, New Zealand v Australia
TV: World Cup Qualifier 2018 matches will be aired on on OSN Sports HD Cricket channel
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
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UAE currency: the story behind the money in your pockets
UAE tour of Zimbabwe
All matches in Bulawayo
Friday, Sept 26 – UAE won by 36 runs
Sunday, Sept 28 – Second ODI
Tuesday, Sept 30 – Third ODI
Thursday, Oct 2 – Fourth ODI
Sunday, Oct 5 – First T20I
Monday, Oct 6 – Second T20I
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Sholto Byrnes on Myanmar politics
THE SIXTH SENSE
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Spending an excessive amount of time on the phone.
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How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.
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Who is Mohammed Al Halbousi?
The new speaker of Iraq’s parliament Mohammed Al Halbousi is the youngest person ever to serve in the role.
The 37-year-old was born in Al Garmah in Anbar and studied civil engineering in Baghdad before going into business. His development company Al Hadeed undertook reconstruction contracts rebuilding parts of Fallujah’s infrastructure.
He entered parliament in 2014 and served as a member of the human rights and finance committees until 2017. In August last year he was appointed governor of Anbar, a role in which he has struggled to secure funding to provide services in the war-damaged province and to secure the withdrawal of Shia militias. He relinquished the post when he was sworn in as a member of parliament on September 3.
He is a member of the Al Hal Sunni-based political party and the Sunni-led Coalition of Iraqi Forces, which is Iraq’s largest Sunni alliance with 37 seats from the May 12 election.
He maintains good relations with former Prime Minister Nouri Al Maliki’s State of Law Coaliton, Hadi Al Amiri’s Badr Organisation and Iranian officials.
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