OPEC+ increases Oil production substantially again, but Oil prices rise nonetheless - Commerzbank

The eight OPEC+ countries with voluntary production cuts decided at the weekend to increase Oil production by 411 thousand barrels per day in July. This was the third such production increase in a row. As there were rumours of an even greater increase in production in the run-up to the meeting, Oil prices rose significantly and recouped the losses from the end of last week. However, there were apparently differing opinions at the virtual meeting, as Reuters reported, citing four OPEC+ sources. Saudi Arabia wanted to increase production more, while Russia and two other countries were in favour of a pause. The decision reached was therefore a compromise, Commerzbank's FX analyst Michael Pfister notes.

Downside risks for the Oil price in the coming months

"With the increase in supply that has now been approved, more than half of the voluntary production cuts of 2.2 million barrels per day have already been reversed. However, the justification for the production increase, which was identical to the previous month, does not sound very convincing. In fact, it is probably primarily about punishing notorious quota overshooters such as Kazakhstan. OPEC+ also apparently does not want to lose any more market share to shale Oil producers in the US and is also fulfilling the demand of US President Trump, who had called for OPEC+ to increase Oil production."

"So far, the Oil market seems to be able to absorb the additional supply. Following the sharp price drop at the beginning of April, which was also caused by the announcement of reciprocal tariffs by US President Trump, and a further decline at the beginning of May, the price of Brent Oil has traded between $63 and $67 per barrel in recent weeks. The current supply shortage in the US, which is reflected in low inventories, is likely to play a role here. In addition, the seasonally higher demand in the summer months could provide short-term support. However, a considerable oversupply could loom in the autumn if OPEC+ increases Oil production at the same rate in the coming months. Looking ahead to next year, however, the Oil market could tighten as no additional Oil supply from OPEC+ is likely to come onto the market."

"There are therefore downside risks for the Oil price in the coming months. After that, however, prices could rise again. This is also shown by a look at the forward curves. These signal a falling Oil price until the end of 2025, followed by a rising Oil price from the beginning of 2026. We continue to expect a Brent Oil price of $65 per barrel at the end of the year and a price of $70 per barrel in the coming year."