OPEC and its allies are nearing the end of unwinding their 2.2 million b/d tranche of voluntary cuts, but what happens next — in a market that faces potentially demand-sapping tariffs, but also supply threats from conflicts and sanctions — remains a major question.

The voluntary cutters are widely expected to finish off the unwinding when key ministers convene Aug. 3 with a decision to raise production quotas by 548,000 b/d for September.

“I see no reason why they won’t go with another accelerated increase for September,” Mark Finley, a fellow in energy and global oil at the Baker Institute for Public Policy at Rice University, said, noting that crude prices have held up better than many market watchers had expected.

If the group agrees to a 548,000 b/d increase, that would fully phase out the 2.2 million b/d voluntary production cuts and is understood to include a 300,000 b/d quota increase previously secured by the UAE.

Harry Tchilinguirian, group head of research at Onyx Capital Advisory, said that he expects the group to complete unwinding the voluntary cuts in September.

“After that, they may allow themselves some time before they tackle the 1.66 million b/d tranche of groupwide cuts,” he said.

These cuts are part of a total 3.66 million b/d of groupwide cuts agreed in 2022 and 2023 that are currently in place until the end of 2026, and were last extended by one year in December 2024.

In aggressively hiking output since April, OPEC+ has said tightness in the market, with strong seasonal summer demand in the Northern Hemisphere and relatively low oil inventories in OECD countries, has justified their strategy, despite many forecasters saying the group risks creating an oversupply.

Crude prices have been buoyed in part by risk premiums from the Israel-Iran conflict, some progress in tariff negotiations between the US and various countries, and perceived buying from China to fill its strategic reserves.

Platts, part of S&P Global Commodity Insights, assessed Dated Brent crude at $73.56/b on July 30, at a similar level to late February, when the group confirmed its plans to start bringing barrels back to market.

But analysts at Commodity Insights say that price resilience may not last, forecasting that Dated Brent could tumble to $58/b in December, driven by a significant 2 million b/d gap between supply and demand in the fourth quarter, exacerbated by OPEC+ output hikes.

That oversupply would be “the largest surplus we have seen since at least 2018, excluding the COVID-19 lockdowns in 2020,” the analysts said in a note.

Saudi supplies

The Aug. 3 meeting involves ministers from the eight OPEC+ members that have implemented the 2.2 million b/d round of voluntary cuts: Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Oman and Algeria.

It will be their first gathering since Saudi Arabia surged its output well above its quota in June in a move it acknowledged was made as a contingency against an oil supply shock from the Israel-Iran conflict.

The alliance’s largest producer pumped 9.54 million b/d in June, up 400,000 b/d on the month, according to the Platts OPEC+ survey(opens in a new tab) by Commodity Insights, but said its supply to market was just 9.36 million b/d, with the excess volumes placed into storage domestically and internationally.

The market will closely monitor how Saudi Arabia plans to manage that massive stock build over the coming months, although for now, traders do not appear to expect a flood of supplies from state-run Aramco.

Asian refiners and traders surveyed by Platts expect Aramco to increase the official selling price of its flagship Arab Light grade for September by 60 cents to $1/b, after China’s refilling of strategic petroleum reserves pushed the Platts Cash Dubai average up $1.07/b higher month over month to a premium of $3/b to same-month Dubai futures as of July 28.

Aramco is scheduled to announce its OSPs in the days after the OPEC+ meeting, and other NOCs and market participants see Aramco’s prices as a bellwether for how Saudi Arabia sees supply and demand dynamics shaping up in the month ahead.

Russian challenges

Meanwhile, Russia — the key non-OPEC member of the alliance — is coming under increasing international pressure over its war with Ukraine.

The EU’s latest sanctions include a coming ban on imports of fuels made from Russian crude, which could crimp Russian supplies to its major customers, particularly India and China. The EU has also lowered the price cap on seaborne Russian crude exports.

Indian officials have already said they are in conversations with other suppliers to replace any lost Russian volumes, which could include Moscow’s OPEC+ counterparts. Russia produced 9 million b/d in June, according to the Platts OPEC+ survey.

The relationship between Russia and Saudi Arabia has been crucial to the OPEC+ alliance, with the pact surviving through the coronavirus pandemic demand collapse and various rounds of Western sanctions over Moscow’s 2022 invasion of Ukraine.

Russia’s lead OPEC+ negotiator and Deputy Prime Minister Alexander Novak discussed the oil market and OPEC+ cooperation at a meeting with Saudi energy minister Prince Abdulaziz bin Salman in Riyadh on July 31, according to government statements.

Commodity Insights analysts see Saudi Arabia pumping 800,000 b/d more crude from September than Russia.
Source: Platts