The financial sting of OPEC+’s shock move to open the oil taps appears to be fading — for the time being.
When Saudi Arabia and its partners agreed four months ago to rapidly revive crude production, the fallout seemed catastrophic: prices crashed to a four-year low, leaving producers with widening budget deficits as state revenues dwindled.
But the ensuing months, which saw the Organization of the Petroleum Exporting Countries and its partners announce further supply increases, have brought some solace.
As benchmark Brent recovers to $70 a barrel and the countries’ production targets rise, the nominal value of output from four of OPEC’s key Middle East members has climbed to the highest since February. This month it jumped to almost $1.4 billion per day, according to calculations using data from Rystad Energy A/S.
The main uncertainty, however, is whether this tentative rebound will endure.
Oil forecasters at Goldman Sachs Group Inc. and JPMorgan Chase & Co. widely expect a price slump later this year as extra barrels from OPEC+ swell the surplus created by faltering Chinese demand and brimming US supply. That could slash OPEC+ revenues again, and even pressure the coalition to roll back the latest output hikes.
Eight key OPEC+ nations will decide this weekend on another bumper production hike for September, which would complete the restart of a 2.2 million-barrel supply tranche a year ahead of schedule.
The alliance is still raking in less cash than before it loosened the spigot, and could face a deeper slump in the months ahead. But for now Riyadh can take consolation that the hit from pushing through such a bold strategy wasn’t much worse.
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