Background on OPEC+ and its Recent Decisions
OPEC+, an alliance of the Organization of Petroleum Exporting Countries (OPEC) and other producers like Russia, is planning to boost oil production by 411,000 barrels per day in August. This follows a similar-sized production increase already scheduled for July.
Impact on Crude Oil Prices
Despite a slight rise on Friday, crude oil prices experienced their largest weekly decline since March 2023. The absence of significant supply disruptions from the Iran-Israel conflict led to a reduction in risk premiums.
- Brent futures: Increased by 0.06% to $67.77 per barrel.
- WTI: Rose by 0.43% to $65.52 per barrel.
- Mexican export mix: Rose by 0.28% to $61.32 per barrel, but fell by 12.91% during the week.
The European Brent dropped by 12% and WTI fell by 12.63% over the week.
Reasons for Production Increase
Four OPEC+ delegates confirmed the group’s plan to raise production by 411,000 barrels per day in August. This follows a similar production increase planned for July.
If agreed, OPEC+’s total production would rise by 1.78 million barrels per day year-to-date, equivalent to over 1.5% of global total demand.
However, the group has yet to increase production as some members are offsetting previous overproduction, while others require more time to resume pumping.
This shift marks a significant change from years of production cuts totaling over 5 million barrels per day.
Geopolitical Factors and Market Response
During the 12-day war following Israel’s attack on Iran’s nuclear facilities on June 13, crude oil prices briefly surpassed $80 per barrel before falling to $67 per barrel after U.S. President Donald Trump announced a ceasefire between Iran and Israel.
According to Janiv Shah, an analyst at Rystad, “The market has largely shrugged off geopolitical risk premiums from last week as we return to a fundamentals-driven market.”
Phil Flynn, an analyst at Price Futures Group, noted that expectations of increased demand in the coming months drove oil prices up early on Friday. “We’re seeing a demand premium on oil,” Flynn said.
Tamas Varga, an analyst at PVM Oil Associates, added that prices were also supported by reports showing strong reductions in middle distillate inventories.
Inventory and Demand Data
U.S. government data showed a drop in crude oil and fuel inventories the previous week, along with increased refinery activity and demand. Meanwhile, independent diesel stocks in the Amsterdam-Rotterdam-Antwerp (ARA) hub fell to their lowest level in over a year, and Singapore’s medium distillate inventories decreased due to rising net exports.
Chinese imports of Iranian crude also increased in June as shipments accelerated before the Iran-Israel conflict and refinery demand improved.
China, the world’s largest oil importer and Iran’s top crude buyer, purchased over 1.8 million barrels per day of Iranian crude from June 1-20, according to Vortexa, a record based on the firm’s data.
The number of active U.S. oil and natural gas rigs fell for the fourth consecutive month to its lowest level since October 2021, according to Baker Hughes.
The number of oil rigs dropped by six to 432, also the lowest since October 2021.
Decline in Oil Company Stocks
Last week, stocks of publicly traded oil companies experienced significant drops in valuation following the crude oil price plunge.
- China Petrochemical: Fell by 5.90%.
- ConocoPhillips: Dropped by 4.77%.
- Exxon Mobil: Decreased by 4.64%.
- Total Energies: Declined by 3.92%.
- Chevron: Fell by 3.85%.
- Royal Dutch Shell: Dropped by 3.19%.
(Source: Reuters)
Key Questions and Answers
- What is OPEC+ and why is its decision important? OPEC+, an alliance of oil-producing nations including Russia, plans to increase production by 411,000 barrels per day in August. This decision impacts global oil supply and, consequently, crude oil prices.
- How have crude oil prices reacted to OPEC+’s plans? Despite a minor rise on Friday, crude oil prices experienced their largest weekly decline since March 2023 due to reduced risk premiums following the Iran-Israel conflict.
- What factors influenced the recent changes in crude oil prices? Geopolitical factors, such as the Iran-Israel conflict, along with inventory and demand data, have played crucial roles in the recent fluctuations of crude oil prices.
- How have publicly traded oil companies’ stocks been affected? Stocks of major oil companies, including China Petrochemical, ConocoPhillips, Exxon Mobil, and Royal Dutch Shell, experienced significant drops in valuation following the crude oil price plunge.
