OPEC+ today agreed on another output surge in June, accelerating a revival of supply for a second month as the group’s leaders seek to chastise overproducing members in a strategy shift that has already sent crude prices plunging. Key nations led by Saudi Arabia and Russia agreed today to add 411,000 barrels a day next month. The hike mirrors a similar increase announced last month, when the group made the shock decision to bring back triple the planned volume for May. But beyond the obvious reasons, there are bigger factors at play. Large US companies like Exxon & Chevron continue to increase their output, Saudi now wants a greater market share before the Iranian or even the Russian supplies come online. Saudi also wants other favors from US such as defense guarentees, weapon contracts etc. Trump is visiting Dubai from 13th May so expect a quid pro quo. Oil traders have realised following facts: (1) the US administration will fail to convince markets that its policies are not recessionary, and (2) Kazakhstan will be unable to reassure its OPEC+ partners that it is willing to meet its commitments. Add to this the onset of NEVs (New Energy Vehicles) in China and a structural slowdown in Chinese economy. Hence we expect Brent prices to fall further towards 50 levels by end June. This will lead to a sharp fall in US oil output that will create a price floor of 60 dollars on brent in the medium term.
