Oil prices declined following reports that Saudi Arabia is seeking another major increase in crude production, raising concerns about a potential oversupply in the market later this year. West Texas Intermediate (WTI) futures fell 0.9%, settling just below $63 per barrel, after earlier dipping nearly 2% on the news.
According to sources familiar with the matter, the kingdom, which acts as the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC), is pushing for OPEC to boost output by at least 411,000 barrels per day starting in August, with the possibility of extending similar increases into September. Saudi Arabia reportedly wants these production hikes to occur as swiftly as possible to capitalize on the heightened summer demand for oil.
Despite the initial market reaction, energy analysts see the move as a continuation of OPEC’s current strategy. Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, noted that the announcement confirms the path OPEC is following and indicates the cartel’s intent to maintain or increase supply to secure market share, especially amid growing competition from U.S. shale producers.
The news of planned production increases emerged amidst mixed signals on demand. U.S. government data showed crude inventories dropped by 4.3 million barrels last week, suggesting tightening supply in the near term. However, gasoline demand reportedly fell, tempering optimism about the strength of fuel consumption.
Earlier this week, oil prices had risen after OPEC+ agreed to raise production in July, a move widely anticipated by market participants. Saudi Arabia led the production ramp-up, according to a Bloomberg survey, as the group commenced a series of accelerated supply additions aimed at regaining market share. Nevertheless, the actual production increase fell short of the full volume Saudi Arabia could have produced under the existing agreements, leaving room for further hikes.
In a related development, Saudi Aramco reduced its oil selling prices to Asia following OPEC+’s continued output increases for the third consecutive month. However, the price cut was smaller than the 35-cents-per-barrel reduction forecast by refiners and traders, indicating a more measured approach to pricing amid shifting supply-demand dynamics.
Oil prices remain under pressure this year, down about 12% amid fears of a looming supply glut. Market watchers are also keeping a close eye on ongoing U.S.-China trade tensions, with President Donald Trump describing his Chinese counterpart as “extremely hard” to negotiate with, adding further uncertainty to the global oil demand outlook.
In summary, Saudi Arabia’s push for additional production hikes underscores OPEC’s strategy to bolster market share despite concerns over oversupply. Combined with mixed demand signals and geopolitical tensions, these factors continue to weigh on oil prices as traders navigate a complex global energy landscape.
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