Oil Set for Second Weekly Decline as Market Eyes another OPEC+ Output Hike

The sun sets behind the chimneys of the Total Grandpuits oil refinery, southeast of Paris, France, March 1, 2021. REUTERS/Christian Hartmann/File Photo
The sun sets behind the chimneys of the Total Grandpuits oil refinery, southeast of Paris, France, March 1, 2021. REUTERS/Christian Hartmann/File Photo
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Oil Set for Second Weekly Decline as Market Eyes another OPEC+ Output Hike

The sun sets behind the chimneys of the Total Grandpuits oil refinery, southeast of Paris, France, March 1, 2021. REUTERS/Christian Hartmann/File Photo
The sun sets behind the chimneys of the Total Grandpuits oil refinery, southeast of Paris, France, March 1, 2021. REUTERS/Christian Hartmann/File Photo

Oil prices were on track for a second consecutive weekly decline on Friday, weighed down by expectations of another OPEC+ output hike in July and fresh uncertainty after the latest legal twist kept US President Donald Trump's tariffs in place.

Brent crude futures slipped 21 cents, or 0.33%, to $63.94 a barrel by 0626 GMT. US West Texas Intermediate crude fell 22 cents, or 0.36%, to $60.72 a barrel. The Brent July futures contract is due to expire on Friday.

Both contracts have fallen 1.3% so far this week, Reuters reported.

The downward trajectory largely stemmed from the prospect of rising supplies as investors priced in another hike by the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, when eight of its members meet on Saturday.

"The stage is set for another bumper production increase," Westpac's head of commodity and carbon research, Robert Rennie, said in a note, potentially more than the 411,000 barrels-per-day hike decided on at the previous two meetings.

The potential hike comes as the global surplus has widened to 2.2 million bpd, likely necessitating a price adjustment to prompt a supply-side response and restore balance, said JPMorgan analysts in a note.

The analysts expect prices to remain within current ranges before easing into the high $50s by year-end.

In the US, Trump's tariffs were to remain in effect after a federal appeals court temporarily reinstated them on Thursday, reversing a trade court's decision on Wednesday to put an immediate block on the most sweeping of the duties.

The block pushed oil prices down more than 1% on Thursday as traders weighed its effects. Analysts said uncertainty would remain as the tariff battles worked through the courts.

Oil prices have lost more than 10% since Trump announced his "Liberation Day" tariffs on April 2.

On the demand front, recession worries fuelled by the tariff war have clouded the outlook. Adding to US-China trade tension, Washington ordered a broad swathe of companies to stop shipping goods, including ethane and butane, to China without a license and revoked licenses already granted to certain suppliers.

Global oil demand improved from the previous week, driven by a rebound in US oil consumption with robust travel over the Memorial Day long weekend, the JPMorgan analysts noted.

Still, the monthly expansion in global oil demand is tracking at approximately 400,000 bpd as of May 28, 250,000 bpd below expectations, the analysts said.



Saudi Arabia Stockpiles Surplus Oil Production to Face Global Crises

Employees at Aramco (Asharq Al-Awsat)
Employees at Aramco (Asharq Al-Awsat)
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Saudi Arabia Stockpiles Surplus Oil Production to Face Global Crises

Employees at Aramco (Asharq Al-Awsat)
Employees at Aramco (Asharq Al-Awsat)

Saudi Arabia has long followed a clear and transparent approach to preserving stability in global energy markets. Historically, it has consistently adhered to all decisions issued by the OPEC+ alliance and played a leading role alongside other producers to ensure compliance and promote the collective good.

Recently, the Kingdom briefly increased production volumes. However, the additional output was neither marketed domestically nor exported abroad. Instead, it was directed as a precautionary measure to strengthen strategic reserves, improve supply flows between the country’s eastern and western regions, and rebalance stocks held in overseas storage facilities.

Asharq Al-Awsat reached out to energy specialists to understand the significance of this move for energy security. Experts explained that building strategic reserves allows Saudi Arabia to respond swiftly to customer needs in the event of political crises, regional wars, adverse weather, or other unforeseen disruptions.

Fouad Al-Zayer, former head of data services at OPEC and an energy expert, said the Kingdom maintains millions of barrels in storage both inside and outside its borders. These reserves serve as a buffer during emergencies, enabling the country to compensate for supply shortfalls within a short timeframe. He emphasized that this stored crude is strategically critical in the face of geopolitical tensions and conflicts.

According to Al-Zayer, Saudi Arabia relies on an extraordinary reserve capacity unmatched by any other producer. The country currently produces more than 9 million barrels per day, with the capability to pump even higher volumes if needed. He noted that Saudi reserves alone account for 3 million barrels per day out of roughly 5 million barrels in global spare capacity, underscoring Riyadh’s central role in stabilizing markets and upholding its commitments under OPEC+ agreements.

He added that Saudi Arabia also hosts the International Energy Forum, which works to improve data quality and transparency in the sector. In June, the Kingdom’s output reached about 9 million barrels per day, with the modest increase attributed to logistical considerations. Al-Zayer stressed that it is common for producers to temporarily boost production to support maintenance operations or replenish storage, without impacting the broader market, since these barrels are not immediately traded.

He reiterated that Saudi Arabia has always honored OPEC+ production targets and has played a pivotal role in encouraging other members to meet their quotas.

Meanwhile, Dr. Mohammed Al-Sabban, former senior adviser to the Saudi Minister of Petroleum, explained that the Kingdom has consistently proven itself a reliable and secure supplier to global energy markets. He noted that Saudi Arabia’s recent statement clarified the reasons behind the June production uptick, emphasizing that the additional oil was neither destined for local consumption nor for export but was solely intended to refill domestic and foreign storage. He said such measures do not represent any breach of commitments, unlike the practices of some other countries.

Al-Sabban pointed out that Saudi Arabia has often gone beyond required cuts to help stabilize markets. Even the recent production increases, he said, fall within the scope of voluntary adjustments agreed upon by OPEC+ members. He noted that in July, Saudi Arabia raised production in line with credible studies indicating the market could absorb these volumes without disruption.