OPEC+ Drops a "Bombshell"! Agrees to Continue Accelerating Production Increase in June

On Saturday local time, OPEC+ member countries agreed to increase oil supply by 411,000 barrels per day (bpd) in June. This marks the second consecutive month that the alliance has accelerated the pace of supply restoration, following a significant and unexpected production increase in May, aiming to penalize member countries that have violated quotas and overproduced.

Following an online meeting lasting over an hour, OPEC+ issued a statement saying that eight oil-producing countries would increase production by 411,000 bpd in June, and that the gradual production increase might be suspended or reversed, depending on changes in market conditions.

The statement showed that Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman reaffirmed their commitment to maintaining market stability on the basis of the current healthy oil market and increasing production.

Although the statement mentioned the "current healthy market foundation," OPEC+ representatives attributed the strategic shift to Saudi Arabia's anger and frustration over excessive production by member countries such as Kazakhstan and Iraq, choosing to punish and restrain these countries by suppressing oil prices.

OPEC+ had originally planned to gradually and steadily lift production cuts over 18 months starting from April, with a monthly production increase of about 137,000 bpd. However, the latest decision means that the group of eight countries, including Saudi Arabia and Russia, will recover nearly half of the production cuts (2.2 million bpd) in just three months.

Prior to this, several core OPEC+ oil-producing countries had announced that they would implement unexpected oil production increases in May, expanding the production increase to 411,000 bpd, three times the original plan. Against the backdrop of the global trade war, this decision led to international oil prices falling below $60 per barrel, recording the largest monthly decline in nearly three and a half years.

Market analysts believe that this move may signal a potential price war brewing. According to OPEC+ representatives, Saudi Arabia has reached its limit with the long-term overproduction by countries such as Kazakhstan and Iraq.

Jorge Leon, an analyst at Rystad Energy who previously worked at the OPEC Secretariat, said, "OPEC+ has just dropped a bombshell on the crude oil market. Saudi Arabia's move is both to punish unruly members and to cater to Trump's wish to see lower oil prices."

Giovanni Staunovo, an analyst at UBS, said that due to trade tensions and concerns about economic growth, as well as the more critical significant production increase by OPEC+, oil prices would fall next Monday.

Meanwhile, Saudi Arabia is seeking to strengthen its relationship with US President Trump, who is set to visit the Middle East this month and may offer Saudi Arabia a package of weapons and a nuclear agreement, after previously calling on OPEC to reduce fuel costs.

It has been reported that Saudi officials have informed allies and industry experts that Saudi Arabia is unwilling to further cut supply to support the oil market and can cope with prolonged low oil prices.

Currently, Brent crude oil prices have fallen to around $61 per barrel, approaching a four-year low, amid fears of a global economic recession triggered by Trump's trade war.

The plunge in oil prices threatens oil companies, including US shale oil producers. These companies have warned that they will be unable to respond to Trump's call to achieve a new era of US energy dominance characterized by "drill, baby, drill." Meanwhile, the oil price collapse has also brought pain to OPEC+ member countries, including Saudi Arabia itself.

Saudi Arabia has already been forced to cut investments in core projects of Crown Prince Mohammed bin Salman's economic transformation plan, such as the Neom future city. According to data from the International Monetary Fund (IMF), Saudi Arabia needs oil prices above $90 to balance its budget, higher than other OPEC members such as the UAE.