Oil prices shot up on Monday as bullish sentiment around demand took hold, but in early trading on Tuesday, prices were slightly down on news that OPEC+ might start increasing production.
“Reports that OPEC+ is already discussing, ahead of its scheduled meeting, to increase its output from August indicates that the demand-supply gap is already becoming an issue and that the alliance is working on a plan to tap that deficit,” Louise Dickson of Rystad Energy said in a statement. “The OPEC+ chatter to raise supply is the most bearish risk for the recent oil price rally, which has been propelled on strong summer demand and an overall conservative supply environment.”
But no decision had been taken yet on the exact volume to bring back to the market, sourced told Reuters. “It is highly possible to increase gradually from August,” said one of the sources.
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, is returning 2.1 million barrels per day (bpd) to the market from May through July as part of a plan to gradually unwind last year’s record oil output curbs. OPEC+ meets next on July 1.
“It is highly possible to increase gradually from August,” said one of the sources, adding that no final decision had been made and the exact volumes are yet to be agreed on.
The talks mean that OPEC and Russia are likely to find common ground again on oil production policy. Moscow has been insisting on raising output further to avoid prices spiking, while key OPEC producers, such as Saudi Arabia, have given no signals on the next step until now.
Russian producers see August as a good time to further ease oil output cuts despite the expected return of Iranian barrels as the market is in deficit, an industry source told Reuters on Tuesday.
“Limping” U.S. production also supports the case for easing the curbs, the Russian source said.
Crude oil prices retreated on Tuesday, after Brent rose above $75 a barrel for the first time since April 2019 and as OPEC+ begins discussions on raising oil production, but a strong demand outlook underpinned prices. [O/R]