OPEC+ at a Crossroads: Production Hike and Future Market Challenges

Sources Reveal OPEC+ Production Hike Plans, Discussions on Target Volume

Sources indicate that the OPEC+ alliance is considering approving a new round of oil production increases at its upcoming meeting on Sunday. Discussions are currently centered on the potential size of the increase for September. OPEC+ contributes approximately half of the world's oil production and has followed a policy of production cuts in recent years to support prices. However, this year it began shifting its strategy towards increasing production to regain a larger market share and also in response to former US President Donald Trump's calls to increase production and lower gasoline prices.

According to three sources, eight OPEC+ member countries may see a daily production increase of 548,000 barrels in September. However, another source indicated that discussions are still ongoing and the final increase may be less than that. If OPEC+ agrees to a significant production increase as traders expect, the organization will face a critical strategic turning point.

Riyadh Meeting Raises Questions, Fate of 1.66 Million Barrels of Suspended Production

An unusual meeting between senior officials from Saudi Arabia and Russia in Riyadh on Thursday added uncertainty to the scene. However, if the production increase is approved, it will precede the original schedule for restoring part of the reduced supply by 2.2 million barrels by a full year. This decision will put the alliance in a decisive choice regarding the resumption of another part of the suspended production, which amounts to about 1.66 million barrels per day. This part of the production was scheduled to remain offline until the end of 2026, and OPEC+ representatives earlier this month expressed a preference to postpone its reactivation for a period of time.

However, there appears to be a trend within the alliance towards restoring this production, as demonstrated by accelerating the restoration of the 2.2 million barrel quantity. If Saudi Arabia is truly committed to prioritizing its market share, it should restart its remaining production capacity as soon as possible. But the extent of its confidence in doing so remains uncertain.

Financial Challenges and Expectations of Falling Oil Prices

With the price of a barrel reaching about $71, it is still significantly less than the level that the International Monetary Fund (IMF) says is necessary for Saudi Arabia to cover the massive expenses of its "Vision 2030" economic program. Many oil analysts, including experts from JP Morgan and Goldman Sachs, expect crude oil prices to fall to $60 this year due to abundant US supplies, which will reduce oil revenues for OPEC+ countries.

Oil traders are closely monitoring Sunday's meeting for any indications of how the organization will handle the 1.66 million barrels per day of suspended production, including whether a subsequent meeting will be set to assess the next steps. If OPEC+ does not provide clear information regarding its future plans, the issue of suspended production will continue to cast a shadow over the global oil market. At present, the alliance is still earning less money than it was before easing production restrictions, and may face a further decline in the coming months. But for now, Saudi Arabia can take comfort in the fact that the blow from implementing this bold strategy has not been worse.