Eight core Opec+ members are set to decide on 3 August whether to complete the unwinding of their 2.2mn b/d of crude production cuts in September or adopt a more cautious approach, given heightened supply and demand uncertainties.
As things stand, the eight members — Saudi Arabia, Iraq, Kuwait, Russia, the UAE, Algeria, Oman and Kazakhstan — have already decided to go ahead with about 80pc of a planned increase of 2.46mn b/d, which includes a 300,000 b/d capacity-related quota adjustment for the UAE.
The group is widely expected to complete the unwinding process with another 548,000 b/d increase to its collective production target in September, matching the accelerated increase for August. This appears to be the most likely option, which would restore the output cuts 12 months earlier than initially planned. One delegate reconfirmed that his country wants to complete the unwinding process in September with another group-wide 548,000 b/d increase. Several other key members have long argued for a speedier return, particularly as some countries have regularly flaunted their targets. But at least one member country favours a slower approach owing to concerns over oil prices. It would prefer to spread the completion of the unwinding process to monthly increments of 137,000 b/d between September and December.
The supply and demand outlook has become cloudier since the eight members last met in early July. The US is threatening secondary sanctions on Russia's oil sales unless it agrees to a ceasefire in Ukraine by 8 August. Such a move could further narrow Moscow's already limited export options. This threat has contributed to a $3/bl rise in Ice Brent futures to more than $72/bl over the past week.
The EU and UK are ramping up sanctions on Russia by lowering the price cap on Russian crude sales to $47.60/bl from $60/bl. The US is tightening sanctions on Iran's oil exports by targeting trading networks and Chinese oil terminals.
Trump's tariffs
Uncertainty over US trade policies continues. While the US has agreed several trade deals with the EU, UK and Japan, its tariff policies towards much of the world and the impact on the global economy remain unclear. The IMF has slightly upgraded its global economic growth forecasts for this year and next, citing a softer tariff impact than initially expected. But US president Donald Trump has since announced another wave of tariffs on dozens of trading partners, and crucially, the US has yet to finalise a deal with China.
Most outlooks see oil demand slowing in the second half of this year, as the western hemisphere exits the peak summer demand season. Even without a further output hike from the eight Opec+ members, the IEA expects a supply surplus of about 1.5mn b/d in the second half.
TotalEnergies has warned of "abundant supply" driven by the Opec+ members' decision to unwind their production cuts and "weak demand that is linked to the slowdown in global economic growth". US oil service firm Baker Hughes expects "continued volatility" as Opec+ increases output "into what we anticipate will be a soft market."
While the speed of the return remains uncertain, the group appears intent on entirely unwinding the 2.2mn b/d cuts, if not in September, then certainly by the end of the year. That would shift attention to a second layer of voluntary cuts worth 1.66mn b/d being implemented by the same eight members plus Gabon, due to remain in place until the end of 2026. There are concerns that some members may not be able reach the higher output levels, which would raise questions over the Opec+ alliance's spare production capacity.
