Despite OPEC+ Output Increase Agreement, International Oil Prices Rise... "Insufficient to Prevent Russian Supply Reduction" (Comprehensive)

Agreement to Increase Production by 648,000 Barrels in July-August... 50% Increase Compared to Previous
Russia's Supply Reduction of 1 Million Barrels... Doubts Over Actual Increase in Production
Biden's Visit to Saudi Arabia Likely to Raise Expectations for Production Increase

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] The OPEC+ coalition, consisting of major oil-producing countries including OPEC members and non-OPEC allies, has agreed to increase oil production beyond previous levels. However, this move was deemed insufficient to offset supply reductions caused by intensified sanctions on Russia, leading to a rise in international oil prices. Nonetheless, the decision to boost production is being interpreted as a signal of normalization in relations between the United States and Saudi Arabia, raising prospects for further production increases by Middle Eastern countries.

On the 2nd (local time) at the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil closed at $116.87 per barrel, up 1.39% from the previous session. Brent crude on the London ICE exchange also ended at $117.61 per barrel, up 1.14% from the previous day.

International oil prices rose despite the news of OPEC+'s additional production increase. Earlier that day, OPEC+ members held a regular meeting and agreed to raise production by 648,000 barrels per day over July and August. This represents about a 50% increase compared to the previous increase of 432,000 barrels per day.

However, this production increase is considered far too small compared to the decline in Russian oil output caused by sanctions. According to CNBC, Russia's daily oil production has dropped by more than 1 million barrels since the Ukraine crisis due to sanctions.

[Image source=Reuters Yonhap News]

The inclusion of Russia in this production increase agreement also heightened disappointment. Since Russia is currently assessed as nearly unable to increase production due to sanctions, concerns have emerged that the actual increase may be much less than announced, as Russia is expected to shoulder a significant portion of the increase.

Jeff Currie, Global Head of Commodities Research at Goldman Sachs, told Bloomberg News in an interview, "This production increase announcement is effectively a declaration that changes nothing," adding, "It is merely compressing a three-step increase plan into two months."

News that the European Union (EU) will ban maritime insurance for tankers transporting Russian oil has further raised concerns about supply pressures. The EU officially announced its sixth round of sanctions against Russia, declaring that tankers carrying Russian oil will be excluded from the maritime insurance market under the shipping ban. The EU also stated it plans to cut Russian oil imports by more than 92% within the year, signaling further tightening of sanctions.

While oil supply pressures intensify, consumption is expected to rise significantly. The U.S. Energy Information Administration (EIA) reported weekly crude oil inventories at 414.733 million barrels, down 5.068 million barrels from the previous week. With summer heat intensifying, increased electricity demand for cooling and higher vehicle travel during the vacation season are expected to further boost consumption.

[Image source=AP Yonhap News]

However, expectations are growing that this production increase announcement will serve as leverage for normalizing relations between the U.S. and Saudi Arabia, sustaining hopes for additional production increases from Middle Eastern countries. The New York Times (NYT) reported that President Joe Biden plans to visit Saudi Arabia during his upcoming Europe and Israel tour scheduled for the end of this month.

Saudi Arabia also made conciliatory gestures toward improving relations with the U.S. On the same day, Saudi Arabia announced a two-month extension of the ceasefire with Yemen's Houthi rebels, mediated by the United Nations (UN). The White House praised the announcement immediately afterward, stating, "Saudi Arabia has shown courageous leadership."

This content was produced with the assistance of AI translation services.