Oil Prices Dip On Report Of Another Potential OPEC+ Supply Boost 

OPEC+ is considering a third straight monthly output hike, departing from the norm of stabilizing oil markets. According to Bloomberg, the group of 12 major oil-exporting nations, including Saudi Arabia, UAE, and others, is considering a July increase of 411,000 barrels per day (bpd)—roughly triple the previously planned amount. This would mirror supply increases in May and June. Such an increase in July could lead to a breakdown in Brent crude’s $60-per-barrel price floor (as long as the war risk premium remains suppressed).

Brent fell to $63 a barrel, down about 1.7% following the news. West Texas Intermediate dropped to around $60 a barrel.

According to delegates, the increase would mark the third consecutive month of added supply, though they noted that no final agreement had been reached.

Bloomberg provided more color about the strategy at play with OPEC+ that would only increase concerns about a global glut: 

The strategy appears aimed at disciplining quota violators by pushing prices lower. But it will add to the overall picture of oversupply — not only is there a chance of more Iranian barrels hitting the market, energy demand globally looks set to soften.

“We’re seeing the market reacting to evidence that OPEC is letting go of a strategy to defend price in favour of market share,” said Harry Tchiliguirian at Onyx Capital Group, adding, “It’s a bit like taking off a Band-Aid; you do it in one fell swoop.”

Department of Energy data released Wednesday morning showed that commercial crude inventories rose for a second consecutive week. Rising inventories and weakness in broader markets have added downward pressure on oil prices.

RBC Capital analyst Helima Croft noted that a 411,000 bpd increase in July is the “most likely outcome,” mainly from Saudi Arabia. She said, “A key question will be whether the voluntary cut will be fully drawn down before the leaves turn brown in many parts of the world, in line with the original taper schedule.” 

OPEC+ is considering another large output increase. However, the macroeconomic backdrop of rising U.S. 10-year Treasury yields may signal a warning: Rising yields reflect tightening financial conditions and slower growth expectations, raising concerns that higher oil supply could weigh on prices. Now, lower prices could be all but derailed if Israel launches a preemptive attack on Iran’s nuclear sites with stealth fighters.