Oil Prices Decline After OPEC+ Approves Significant Production Increase

SadaNews - Oil prices have dropped after the OPEC+ alliance approved a new and substantial increase in production, fueling fears of a global supply surplus at a time when the outlook for global economic growth is under pressure from the trade war led by the United States, which may affect energy consumption.

Brent crude fell, approaching $69 per barrel, while West Texas Intermediate traded near $67, after the OPEC+ alliance agreed to an additional increase of about 547,000 barrels per day starting in September, in line with expectations. There remains uncertainty about whether additional production restrictions will be lifted in the coming months.

This decline comes after three months of continued gains in oil prices, but prices dropped last Friday due to weak U.S. job data that raised concerns about a slowdown in the world's largest economy, amid tariffs imposed by President Donald Trump's administration.

Nevertheless, traders are anticipating that Washington may take action this week to restrict Russian oil exports, including sales to India, as part of an effort to increase pressure on Moscow to stop the war in Ukraine.

Expectations for Price Stability This Year

Analysts at Goldman Sachs, including Yulia Giestkova Grigspie, wrote in a research note: "While OPEC+ policy remains flexible and geopolitical developments are unclear, we assume that the alliance will maintain the required levels of production unchanged after September." The bank retained its forecasts for the average price of Brent crude at $64 per barrel in the fourth quarter of the year, with a potential decline to $56 in 2026.

Additionally, the production increase in September, announced by the alliance over the weekend, completes the reversal of previous cuts imposed by an alliance of eight members, including Saudi Arabia and Russia, in 2023. The gradual restoration of supply has been interpreted as an organized attempt to regain market share.

In light of the ambiguity surrounding Russian oil flows, the Indian government has not issued any directives to its refineries to cease purchasing Russian shipments, according to informed sources. However, Trump had criticized New Delhi for its purchases and threatened to impose what are known as secondary sanctions that could come into effect on August 8. Trump told reporters on Sunday that special envoy Steve Wietkof may head to Russia this week, likely on Wednesday or Thursday.

Chris Weston, head of research at Pepperstone Group in Melbourne, stated: "The initial reaction when trading in oil futures reopened was selling." He added that markets are watching OPEC+’s direction in the next phase, with a focus on potential sanctions against Russia and its trading partners, inventory levels, and the performance of the U.S. economy.