OPEC+ Agrees Another Oil Supply Surge in June, Delegates Say

The RN-Tuapsinsky refinery, operated by Rosneft Oil Co., stands in Tuapse, Russia, on Monday, March 23, 2020. Oil resumed gains on signs that the world's biggest producers are moving toward a deal to end their price war and cut output. Photographer: Andrey Rudakov/Bloomberg Photo by Andrey Rudakov /Bloomberg

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(Bloomberg) — OPEC+ agreed on another output surge in June, accelerating a revival of supply for a second month as the group’s leaders seek to chastise overproducing members in a strategy shift that has already sent crude prices plunging. 

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Key nations led by Saudi Arabia and Russia agreed on Saturday to add 411,000 barrels a day next month, the delegates said, asking not to be identified discussing private information. The hike mirrors a similar increase announced last month, when the group made the shock decision to bring back triple the planned volume for May. 

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Crude traders had already been bracing for a large increase after Saudi Arabia signaled in recent weeks that it was willing to accept a prolonged period of low oil prices. But it builds on a dramatic reversal in recent months from the cartel’s longstanding position of defending oil prices, raising questions about the future of the alliance and spurring speculation about a price war.

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OPEC+ delegates have said that the strategy shift came about because the Saudis grew tired of overproduction by members like Kazakhstan and Iraq, and have chosen to discipline them through the financial “sweating” of a price slump. 

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“OPEC+ has just thrown a bombshell to the oil market,” said Jorge Leon, an analyst at Rystad Energy A/S, who previously worked at the OPEC secretariat. “With this move Saudi Arabia is seeking to punish lack of compliance particularly from Kazakhstan but also ingratiate with President Trump’s push for lower oil prices.”

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READ: Understanding the Saudi Push for Lower Oil Prices: Javier Blas

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Riyadh is seeking to strengthen ties with US President Donald Trump, who will visit the Middle East this month and has called on the Organization of the Petroleum Exporting Countries to lower fuel costs. Trump is also holding volatile talks on a nuclear pact with Riyadh’s political foe and fellow OPEC member, Iran. 

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Oil prices traded near $61 a barrel in London on Friday, close to a four-year low, as the Saudi pivot added to fears over Trump’s tariff onslaught against China — the world’s biggest oil importer — and other major economies. Even before OPEC+ began to ramp up output, oil markets faced a 2025 surplus due to slowing Chinese demand and plentiful American supply.

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The plunge in prices threatens oil firms including US shale producers, who have warned they’ll be unable to obey Trump’s call to “drill, baby, drill” toward a new era of American energy dominance. It also spells pain for members of OPEC+ including the Saudis themselves.

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The kingdom has been already been forced to cut investment in projects at the heart of Crown Prince Mohammed bin Salman’s plans for economic transformation, such as the futuristic city, Neom. The outlook for Mideast nations was downgraded last week by the International Monetary Fund, which estimates that Riyadh needs oil prices above $90 to cover government spending.

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So far, the “sweating” appears to have had little success in reforming the alliance’s rogue producers.