Despite falling prices, OPEC+ increases production

Eight OPEC+ member countries announced a sharp increase in oil production for June on Saturday, accelerating the pace of reopening the valves at the risk of sinking already very low prices.

Saudi Arabia, along with Russia and six other cartel members, will produce 411,000 barrels per day, the same as in May, according to a statement, while the initial reintroduction plan called for an increase of only 137,000 barrels.

"After last month's signal, today's decision sends a clear message: the group is changing its strategy and seeking to regain market share after years of cuts," he continues. A turnaround that also allows it to "build good relations with Donald Trump's United States," according to the analyst.

Shortly after taking office, the American president asked Saudi Arabia to produce more to lower the price of black gold.

Members of the Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, and their allies led by Moscow, entered into an agreement called OPEC+ in 2016 to exert greater influence on the market. These 22 countries, most of which are heavily dependent on oil, had until recently been exploiting the scarcity of supply to boost prices, holding millions of barrels in reserve.

After repeatedly postponing the reintroduction of these volumes, they started the process at the beginning of April and are now stepping on the accelerator.

Such an increase in production, despite already very low market prices – around $60 per barrel – may be intended to "punish the cheats" among OPEC+ members, those "who do not respect their quotas," believes Arne Lohmann Rasmussen of Global Risk Management.

These internal disagreements do not, however, alone explain OPEC+'s decision, which may also be motivated by the desire to anticipate potential geopolitical developments.

Because if talks on Iranian nuclear power and the search for a lasting ceasefire between Russia and Ukraine are successful, the United States could ease its sanctions against Moscow and Tehran, allowing the export of new barrels.

In this context, OPEC+ prefers to advance its pawns by rapidly increasing its production. This strategy, however, could exacerbate the decline in oil prices, which could also endanger American players in the sector. Production would no longer be profitable for them "below $55 for an extended period," explains Ole Hvalbye, an analyst at SEB. It could therefore be that Saudi Arabia is "testing" its influence on prices, to send the market a signal that it "can produce regardless of the price."

Donald Trump's inauguration in January marked a turning point for oil prices. Oil prices, which had been trading around $80 a barrel, have since plummeted due to the worsening economic outlook.

The trade war between the United States and China, the two largest oil consumers, has contributed to lowering demand forecasts, causing prices to fall to levels not seen since February 2021.