Oil prices jumped more than 3% on Monday as OPEC+ agreed to raise production by the same amount in July as in the previous two months.
The Organization of the Petroleum Exporting Countries and allies agreed to another large supply hike over the weekend, increasing it by 411,000 barrels a day effective July.
The increase is similar to those in May and June.
“Despite the large increase, oil prices rallied this morning. This could be because there had been suggestions that the group may go for an even larger supply increase,” analysts at ING Group, said in a note.
At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $63.01 per barrel, up 3.7% from the previous close.
Brent crude oil on the Intercontinental Exchange was up 3.4% at $64.90 a barrel.
Both benchmarks had fallen more than 1% last week.
Production cuts and supply
The price decline last week was primarily due to expectations of a larger increase in output for July.
However, the group stuck with the same increases in production.
The cartel had been increasing production by bringing back some of its voluntary production cuts of 2.2 million barrels per day.
Eight members of the cartel, including Saudi Arabia and Russia, had been adhering to steep voluntary production cuts of 2.2 million barrels daily since early 2024.
The 2.2 million barrels per day of voluntary production cuts were initially planned to be phased out by September 2026.
“This would mean that the full 2.2m b/d of supply will be brought back by the end of the third quarter of this year, 12 months ahead of schedule,” ING analysts said.
The latest increase is in line with our expectations. We’re also assuming that OPEC+ will continue with these large supply hikes.
ING Group also expects Brent crude oil to average only $59 a barrel in the fourth quarter as supply would be higher.
Meanwhile, Kazakhstan has informed OPEC that it does not intend to reduce oil production, Russia’s Interfax news agency reported on Thursday, citing Kazakhstan’s deputy energy minister.
Geopolitical tensions support oil
Increased friction between Russia and Ukraine provided additional market support this morning.
Ahead of scheduled peace negotiations between the two nations this week, Ukraine launched significant drone strikes targeting multiple Russian airfields.
Several US senators are advocating for stronger sanctions against Russia.
One proposed measure includes imposing a 500% tariff on imports from nations that purchase Russian oil.
Republican Senator Lindsey Graham and Democratic Senator Richard Blumenthal are aiming for sanctions to be implemented before the G-7 summit in mid-June.
Despite his growing frustration with his Russian counterpart Vladimir Putin, US President Donald Trump has thus far hesitated to enact further sanctions.
Measures that effectively target Russian oil exports would significantly alter the oil market’s trajectory, according to ING.
US drilling affected by lower prices
The continued pressure from lower oil prices is negatively impacting drilling activity in the US.
Even though oil prices have risen 3% on Monday, the current range of $60-$63 per barrel for WTI is not feasible for further drilling activities in the US.
US oil rig counts decreased for the fifth straight week, according to the most recent Baker Hughes data, dropping by 4 to a total of 461.
ING analysts noted:
Given our view for oil prices to move lower towards the end of this year, we would expect to see additional slowing in drilling activity, calling into question forecasts for growth in US oil supply next year.
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