OPEC+ will press on with its plan to increase its oil production quotas for the month of July, anonymous sources have told Reuters—with the group staying the course despite the low oil price environment.
OPEC has long argued that it makes output decisions based on supply and demand expectations—not oil prices.
The group is planning to meet on Wednesday, with three delegates from the OPEC+ group telling Reuters that it is not expecting to change its policy that it set previously: increase production quotes each month until all the production quotas have been unwound.
Some analysts have been quick to point out that production quotas and production are hardly the same thing, with domestic crude oil demand rising in the summer months to meet the demand for cooling during the warmer months, and some countries unable to ramp up. Still, the anticipation of production increases from the OPEC+ group when oil is already under the breakeven point for producers in the Permian continues to weigh on prices.
Tuesday morning’s prices at 10:55 am in New York were $60.95 for WTI and $64.17 for Brent, a nearly 1% drop that can be mostly attributed to market sentiment surrounding the OPEC+ decision that is expected tomorrow.
Traders and analysts have been watching the steady drop of US drilling rigs, including in the most prolific basin, the Permian. Last week the number of active drilling rigs in the US dropped by 10 as prices squeezed E&Ps.
That drop brought the total U.S. oil-directed rig count down to 465, the lowest level since November 2021, according to JP Morgan analysts. With cash flow tightening and capital discipline still the name of the game, many independent shale producers have already begun scaling back activity—especially as hedges roll off and breakeven economics come under pressure.
Despite the market’s hand-wringing, OPEC+ appears determined to stick with its roadmap to gradually restore output that was cut during the COVID-era slump. The unwinding plan has been telegraphed for months, and reversing course now could risk credibility—something the group has worked hard to reestablish.
The wildcard, of course, is how long OPEC+ members can actually sustain higher production and lower revenue. Many member nations are already pumping below quota due to technical or political constraints, and domestic summer demand in countries like Saudi Arabia will likely soak up additional barrels before they ever reach export markets.
For now, the group seems content to keep the optics of unity and control, even if the real supply picture is more complicated under the hood. But with global inventories trending higher and demand signals still murky, the market’s patience is wearing thin.
By Julianne Geiger for Oilprice.com
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