OPEC+ is implementing another aggressive supply hike. Effective in June, this increase solidifies a shift in policy. With prospects of further large supply increases in the months ahead, we revised our oil forecasts lower, ING’s commodity expert Warren Patterson notes.
Saudis may have to cut spending and/or tap debt markets
“The Saudis are the driving force behind larger-than-scheduled supply increases to punish members who’ve repeatedly produced above their targets. OPEC+ surprised the market back in April with a supply increase of 411k b/d for May, above the scheduled increase of 135k b/d. This past weekend, the group decided to go with a similarly aggressive supply increase for June.”
“Originally, OPEC+ was meant to bring back 2.2m b/d of supply over an 18-month period, running through to September 2026. However, in three months, the group has decided to bring back almost 1m b/d of supply. The oil market has been dealing with significant demand uncertainty amid tariff risks. This change in OPEC+ policy adds to uncertainty on the supply side. Adding to the uncertainty: the group will decide on output levels month by month. OPEC+ will decide July output levels on 1 June.”
“The key to knowing how far the Saudis will take what is starting to look like a price war is the nation’s tolerance for low oil prices over time. The Saudis need around US$90/bbl to balance their fiscal budget, quite a distance above current prices. Saudi Arabia will be able to lower its fiscal breakeven level by pumping more. Obviously, this also depends on how much lower prices trade amid increased supply. The widening gap between their fiscal breakeven level and current oil prices means that the Saudis will have to cut spending and/or tap debt markets.”