Workers in the oil industry reduce their earnings
Rewritten Article:
OPEC+ Decision Kicks Off Summer Producing Frenzy
Sayonara, low oil inventories! Eight OPEC+ countries have decided to bump up production threefold in the opening month of summer, as per their latest announcement. Yep, you read that right - they're planning to kick up production by an eye-popping 411,000 b/d in May, which is three times the initially agreed-upon increase.
As rumors about Saudi Arabia's displeasure with certain OPEC+ countries, particularly Kazakhstan, have been simmering for a while, the kingdom seems to have taken the matter into its own hands. OPEC's latest numbers indicate that Kazakhstan has been pushing the production limits, averaging 1.85 million b/d in March - a whopping 422,000 b/d over the agreed-upon limit. The big picture, unfortunately, hasn't looked so rosy, as OPEC+ countries as a whole have exceeded the agreed volume by 102,000 b/d. Some have been playing by the rules, even surpassing them, while Kazakhstan appears to be flouting the deal left and right.
Clearly, Russia isn't too pleased with the situation either. During the OPEC+ summit, Russian Deputy Prime Minister Alexander Novak called on all countries to stick to their fair share in maintaining the balance of supply and demand. He also emphasized the importance of adhering to production levels and the scheduled compensatory cuts for previously exceeded plans.
Meanwhile, according to Alexander Losev, General Director of UK "Sputnik - Capital Management," the move is purely punitive in nature. Losev claims that Saudi Arabia is intentionally scrapping the previously imposed 2.2 million bpd production cuts as a form of payback against Kazakhstan and Iraq for their persistent violations of production quotas. This can be seen as a deep bow to US President Donald Trump ahead of his impending visit to Saudi Arabia later in the month, as Trump has repeatedly urged OPEC+ to increase oil production.
Investment experts have suggested that the decision is a signal to Trump, who has repeatedly expressed his desire to boost US oil production. "Donald Trump has pledged to keep increasing US oil production. If his intentions are genuine, rather than empty posturing, not only OPEC+ members but also US authorities will have to take more proactive steps to maintain acceptable oil prices, such as regular strategic reserve purchases," said Ludmila Rykotianskaya, an expert at BCS World of Investments.
Curious about Saudi Arabia's ability to thrive in low-price conditions? Well, traditionally lower production costs are in their favor! As Anton Sviridenko, Executive Director of the Institute of Economic Growth, explains, Saudi Arabia has much lower production costs than other producers.
The question now looming is whether we're on the brink of another wave of scaling back US oil producers' capacities. The most recent quarterly study by the Federal Reserve Bank of Dallas suggests that shale drilling remains profitable only when oil prices reach $65 per barrel. However, with WTI currently hovering at $57, the US shale industry is facing a period of consolidation and mergers. Only the largest oil and gas companies will be able to continue production if prices don't return to profitability, added Alexander Loshev.
The decision to increase production was met with some skepticism in the market, as the increased supply put downward pressure on oil prices. The sell-offs in oil contracts that followed were compensated for once the market realized that the OPEC+ countries might not actually produce as much 'new' oil as expected. Moreover, the conflict between India and Pakistan, as well as a weak dollar, helped shore up commodity assets.
"The global oil market is balanced, with daily crude oil consumption at 103.6 million barrels. By 2025, according to the International Energy Agency, demand is expected to increase by 300,000 bpd. This means that OPEC+'s increase in quotas by 0.4 million bpd doesn't seem all that threatening," observes Alexander Loshev. Russia's budget is set to take a bit of a hit with the cheapening of oil, but the losses will be offset by interventions from the National Wealth Fund within the budget rule.
In conclusion, OPEC+ countries are continuing their push for greater compliance, with attention focused on Kazakhstan and Iraq, who have been exceeding their production quotas. The markets are closely watching to see how the situation unfolds, as the outcome could have significant consequences for both OPEC+ members and US shale producers.
- The increase in oil production by OPEC+ countries, specifically Saudi Arabia, could lead to a surge in the energy sector, potentially influencing the finance industry's investment strategies in the oil-and-gas domain.
- The ongoing tensions within OPEC+, particularly between Saudi Arabia and Kazakhstan, could impact the energy industry's balance, specifically oil production, and, as a result, affect global finance and investment investment patterns in the oil-and-gas sector.
