Oil prices experienced a notable rebound on June 2, climbing more than $1 a barrel after the OPEC+ producer group announced a decision to increase output in July. This increase mirrors the adjustments made in the previous two months, providing relief to market participants who had anticipated a more significant production hike. By 0346 GMT, Brent crude futures rose by $1.34, or 2.13%, reaching $64.12 a barrel after a previous decline of 0.9% on Friday. Similarly, U.S. West Texas Intermediate (WTI) crude saw an increase of $1.52, or 2.5%, bringing it to $62.31 a barrel, following a 0.3% drop in the prior session.
Both Brent and WTI contracts were down over 1% last week, underscoring the market’s volatility. On Saturday, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, decided to raise production by 411,000 barrels per day (bpd) in July. This marks the third consecutive month that the group has opted for the same output increase, aiming to reclaim market share and address compliance issues among over-producing members.
Analyst Harry Tchilinguirian from Onyx Capital Group expressed that had OPEC+ opted for a larger production increase, the market could have reacted negatively. He noted on LinkedIn, "Had they gone through with a surprise larger amount, then Monday’s price open would have been pretty ugly indeed." Oil traders indicated that the 411,000 bpd increase had already been factored into the pricing of Brent and WTI futures.
The Commonwealth Bank of Australia reported that the primary focus of OPEC+ is to penalize members such as Iraq and Kazakhstan, who have consistently exceeded their production quotas. Kazakhstan, specifically, has communicated to OPEC that it does not plan to reduce its oil production, according to a report by Russia's Interfax news agency, which cited the country's deputy energy minister.
Looking ahead, analysts from Goldman Sachs project that OPEC+ will consider an additional production increase of 0.41 million bpd in August. They believe that the current tightness in oil fundamentals, favorable global activity data, and the seasonal uptick in oil demand during summer will likely prevent a sharp slowdown in demand. A decision regarding August production levels is expected to be made on July 6th, according to their note released on Sunday.
Moreover, analysts are drawing attention to low levels of U.S. fuel inventories, which are raising supply concerns in light of predictions for an above-average hurricane season. A significant rise in gasoline implied demand was noted by ANZ analysts, who reported that the increase of nearly 1 million bpd represents the third-highest weekly gain in three years, coinciding with the start of the U.S. driving season.
Traders are also monitoring how lower prices might affect U.S. crude production, which reached a record high of 13.49 million bpd in March. However, recent reports from Baker Hughes reveal a continued decline in the number of operational oil rigs in the U.S., with a decrease of four rigs last week, bringing the total to 461. This marks the lowest count since November 2021.
The market remains attentive to these developments as they will likely influence oil prices and overall production strategies in the coming months.
