Following two previous announcements of a production increase of 411,000 barrels per day, the Organization of the Petroleum Exporting Countries (OPEC) recently discussed the issue of increasing production in July at its meeting and decided to announce another large-scale production hike of 411,000 barrels per day for the third consecutive month. Analysts point out that, combined with ongoing trade tensions and geopolitical risks, the crude oil market’s volatility is likely to intensify as a result of this production increase plan.

Major oil-producing countries will continue to increase production in July.

According to a report by Agence France-Presse, OPEC recently issued a statement saying that eight OPEC and non-OPEC oil-producing countries—Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman—have decided to increase their daily production by 411,000 barrels starting in July, matching the planned increase for May and June.

According to the statement, given the current solid market fundamentals and low oil inventories, the eight countries have decided to adjust their production levels and will flexibly modulate the pace of increased production based on market conditions, in order to maintain stability in the oil market. The production levels for August will be finalized at the meeting on July 6.

According to Bloomberg, this will mark the third consecutive month of increased production by OPEC+ . In November 2023, the eight countries announced a voluntary production cut of 2.2 million barrels per day. Since then, the reduction measures have been extended several times, with the latest extension lasting until the end of March 2025, originally set to expire in December 2024. In March of this year, the eight countries decided to gradually increase oil production starting April 1. Despite OPEC+’s substantial production hike for the third month in a row, analysts say that the actual increase may fall short of the planned level. In fact, although concerns about the long-term demand outlook remain, oil prices still have room to rise—mainly because crude oil inventories continue to stay at relatively low levels, while demand typically surges during the summer months as travel activity picks up.

Richard Browne, geopolitical head at research firm Energy Aspects, said: “Although oil prices have already fallen, the market remains relatively tight as we enter summer, creating an opportunity window for increased supply.” Browne noted that Saudi Arabia and other oil-producing countries have also ramped up their oil consumption to power air conditioners during the hot summer months, thereby reducing the amount of fuel available for export. He added: “The supply visible on the market hasn’t changed significantly.”

Currently, Morgan Stanley’s energy team believes that OPEC+ may extend its production increase cycle until the end of 2025. In a report dated June 2, analysts including Martin Rats of Morgan Stanley pointed out that OPEC+’s latest statement indicates virtually no sign of slowing down the pace of production quota increases. The upward revision in quotas could create room for Saudi Arabia to boost production further, while Kuwait and Algeria could also benefit to some extent.

However, Goldman Sachs holds a different view. In a report released on June 1, Goldman Sachs’ commodity research team pointed out that the phased production increase plan initiated by OPEC+ will reach a “policy inflection point” in August. Faced with increased production from non-OPEC+ oil-producing countries and the impact of a global economic slowdown in the third quarter of this year, OPEC+ will maintain its current production quotas unchanged starting from September; nevertheless, “the risk of further production increases remains.”

Strouven and other Goldman Sachs analysts pointed out that the current fundamentals for spot crude oil remain relatively tight. Coupled with better-than-expected global economic activity data and seasonal summer demand, these factors all support continued production increases. Therefore, by the time a decision is made on August production levels on July 6, the extent of any subsequent slowdown in demand may still be insufficient to halt the pace of production growth. Meanwhile, UBS Group noted that attention should be paid to policy divergences within OPEC+. Member countries facing significant fiscal pressures, such as Iraq and Nigeria, may be inclined to maintain the current pace of production increases, whereas countries with stronger fiscal positions, like Saudi Arabia and the United Arab Emirates, are more focused on price stability. This divergence could lead to the production increase plan being phased out gradually rather than being abruptly terminated.

Crude oil market volatility may intensify.

The analysis points out that the relationship between supply and demand is the fundamental factor influencing crude oil prices, while geopolitical factors also play a crucial role. Currently, major oil-producing countries will continue to increase production in July, and the escalating situation in the Ukraine crisis will further intensify volatility in the future crude oil market.

In their latest report, Goldman Sachs analysts maintained their forecast of an average Brent crude oil futures price of $60 per barrel for the remainder of this year, while also predicting a further decline to $56 per barrel in 2026.

In a report dated June 2, analysts including Martin Rats of Morgan Stanley pointed out that OPEC+ could continue increasing production over the next three months, a move that would push oil prices lower. Morgan Stanley’s report forecasts that Brent crude oil futures will average $57.5 per barrel in the final two quarters of this year and further decline to $55 per barrel in the first half of next year.

Todorova, Senior Research Analyst at Leverage Shares, a U.S. exchange-traded products provider, believes that the oil market currently appears balanced. She notes that OPEC+ continuing its voluntary production cuts at a pace of 411,000 barrels per day in July is a reasonable move given the current circumstances. However, this does not come without risks. Todorova warns that if these oil-producing countries increase their supply as expected, oil prices could fall by roughly 10%. As a result, New York light crude oil futures prices could drop to between $53 and $55 per barrel.

Currently, the global energy market has experienced a week of volatility, with oil prices declining under the dual pressures of OPEC+’s production increase plan and escalating global trade tensions. Analysts say that this market fluctuation reflects the high degree of uncertainty and complexity currently prevailing in the oil market, and investors need to closely monitor related developments.

Low oil prices hit producers.

According to foreign media reports, major oil-producing countries have decided to increase production, and coupled with escalating global trade tensions, international oil prices have fallen to their lowest level since the start of the pandemic. While lower oil prices benefit consumers, they will deal a severe blow to producers. Analysts say that the increased supply from OPEC+ is putting downward pressure on crude oil prices, squeezing profits across the board—but the impact is particularly pronounced for certain producers, including a key rival group: U.S. shale oil producers.

Li Ang, an analyst at Rystad Energy, a Norwegian energy market research firm, said that oil prices approaching or falling below $60 per barrel clearly pose challenges for shale oil producers. Several companies engaged in shale oil and gas extraction have already announced cuts in their investments in the Permian Basin.

According to a report by the UK’s Financial Times, U.S. shale oil giants Diamondback Energy and Coterra Energy recently announced that they will cut their 2025 capital budgets and reduce the number of drilling rigs. Following OPEC+’s earlier announcement of a substantial increase in production, which triggered a sharp drop in oil prices, U.S. shale oil giants had already been planning to announce cuts in capital expenditures. Industry insiders are warning that U.S. shale oil production may have already reached its peak.

Diamondback Energy, one of the largest producers in the Permian Basin in West Texas—the largest oil field in the United States—announced that it will cut its 2025 capital budget by $400 million, bringing it down to between $3.8 billion and $4.2 billion. Houston-based energy company Coterra Energy noted that its 2025 capital expenditures will be reduced to between $2 billion and $2.3 billion, lower than the previous range of $2.1 billion to $2.4 billion.

Faced with potential price fluctuations in the crude oil market, global energy giants have initiated strategic adjustments and are accelerating their deployment in alternative energy sources. Shell announced that it will increase its investment share in renewable energy to 28% by 2025, a rise of 5 percentage points from 2024. Meanwhile, BP plans to build three new biodiesel refineries in Southeast Asia, with an expected capacity of 1.2 million tons per year by 2026.

Goldman Sachs’ analysis team pointed out that the low-carbon transition in energy-intensive industries will, in the medium to long term, curb demand for crude oil—this is also a key factor behind OPEC+’s consideration of ending its production increase policy.

According to AFP, Brent crude oil futures are currently trading below $65 per barrel—far lower than the over $120 per barrel seen in 2022 following the Ukraine crisis. The drop in oil prices has slowed the pace of global inflation and boosted economic growth in countries that rely on imported crude oil, including most European nations.

Sinha, an economist at the UK-based think tank Centre for Economics and Business Research (CEBR), told AFP that falling crude oil prices will help reduce transportation and production costs, thereby further easing inflation. With more disposable income, consumers will be able to engage in more non-essential spending, such as leisure and tourism.

However, Singh pointed out that although the decline in oil prices is partly attributable to tense trade policies, input costs for other commodities such as metals are likely to surge, making it still difficult to predict the net impact on inflation. Moreover, low oil prices could also undermine the competitiveness of renewable energy, potentially slowing down investment in green technologies.