Opec+ leaves traders with cliffhanger as stormy chapter ends

[NEW YORK] The Organization of the Petroleum Exporting Countries and its allies (Opec+) closed a two-year chapter in its oil strategy on Sunday (Aug 3) with the last in a series of bumper oil production increases. But it left crude traders with a cliffhanger.

Saudi Arabia and its partners have stunned oil markets and capped futures prices in recent months by pushing more barrels into a fragile global market, offering relief to consumers and a fillip for US President Donald Trump.

The 547,000 barrel-a-day output increase they approved on Sunday completes the reversal, one year ahead of schedule, of a giant supply cutback made in 2023. The Opec+ have fast-tracked the revival in a bid to reclaim market share.

Yet they also have unfinished business: another layer of supplies, also halted two years ago, amounting to 1.66 million barrels a day, which is currently due to remain offline until late 2026. And on Sunday, delegates were offering less, rather than more, clarity regarding its fate.

Depending on oil market conditions, the coalition could press on with restarting this tranche, officials said. Or, as some delegates suggested last month, the producers could take a pause. Alternatively, if markets slump, they might even completely reverse the recent surge. A follow-up meeting was set for Sep 7 to review the situation.

“The messaging coming from today’s voluntary producer meeting is that all options remain on the table, including bringing those barrels back, pausing increases for now, or even reversing the recent policy action,” said Helima Croft, head of commodity strategy at RBC Capital Markets.

Based on the outlook for the months ahead, Opec+ may actually need to consider cutting production.

While oil demand has held up this year, a projected slowdown in China and swelling supplies across the Americas leave world markets on track for a hefty surplus of two million barrels per day in the fourth quarter, according to the International Energy Agency in Paris. Weak US economic data on Friday underscored the risks to consumption from Trump’s tariffs.

Forecasters such as Goldman Sachs and JPMorgan Chase see crude futures, already down 6.7 per cent this year to near US$70 a barrel in London, sliding further towards US$60 later in the year. That’s considerably lower than the levels the Saudis and other Opec+ members need to cover government spending.

Goldman expects that the coalition will most likely pause and hold output levels steady for some time as it takes stock of supply and demand balances. Five crude traders surveyed by Bloomberg last week also predicted a hiatus.

On the other hand, if Riyadh is genuinely committed to pursuing market share, as sources familiar with its thinking believe, it should ignore those forecasts and press on with restarting the 1.7 million-barrel tranche regardless.

“We can expect the group to adopt a wait-and-see approach for at least the first several months,” said Greg Brew, senior analyst at Eurasia Group. “But if there is a contraction in US supply, and if demand growth and the general macro environment remains favourable, I think further unwinding of cuts should be expected.”

The outlook is only clouded further by the geopolitical backdrop, as Trump intensifies diplomatic pressure on Opec+ co-leader Russia over its war against Ukraine.

The US president has threatened to impose secondary tariffs on Moscow’s oil customers unless a ceasefire in the conflict is quickly agreed.

On Thursday, Russian Deputy Prime Minister Alexander Novak made a rare visit to Riyadh for talks with Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, a meeting that officials said symbolised the solidarity between the two oil giants.

As Opec+ weighs pressure from Trump to lower prices on one side, and a desire to preserve alliance cohesion on the other, whatever it ultimately decides will involve a delicate balancing act.

“Will it move to unwind the remaining 1.7 million barrels-a-day to defend market share, especially if fresh US sanctions hit Russian oil, without putting unity at risk?” said Jorge Leon, an analyst at Rystad Energy A/S who previously worked at the Opec secretariat. “The group is still threading a fine needle.” BLOOMBERG