Opec+ move to raise output a key pivot for oil markets

Khaleej Times

05-06-2025

The increase in oil production by the Organisation of Petroleum Exporting Countries (Opec) and its allies including Russia, collectively known an Opec+, comes at a pivotal moment for global oil markets, analysts say.
Saudi Arabia, Russia and six other key members of the Organisation of Petroleum Exporting Countries (Opec) announced on Saturday a huge increase in crude production for July.
They will produce an additional 411,000 barrels a day — the same target set for May and then June — according to a statement, which is more than three times greater than the group had previously planned.
The move signals a shift in strategy that could reshape the global energy landscape for years to come. While the immediate market reaction was a sharp drop in oil prices, the long-term consequences are far more nuanced.
By boosting supply in a market already grappling with sluggish demand, the move is likely to keep oil prices lower for an extended period. This could strain the budgets of oil-dependent economies, where fiscal breakeven prices remain well above current market levels.
At the same time, this decision may reflect a deeper strategic pivot: a bid to defend market share against rising non-Opec producers and resilient US shale. For example, while countries in the GCC can produce oil at around $3 to $10 per barrel, the production cost for US shale can be as high as $40-55 per barrel. The IEA notes that US shale output is under pressure due to recent oil price declines, prompting some producers to reduce rig counts and cut back on production plans.
A range-bound crude oil market saw prices recover all of last week's losses, surging higher despite a group of eight Opec+ producers announcing a third consecutive production hike of 0.41 million barrels per day. 'This move was made primarily to regain market share from high-cost producers and to penalise persistent cheaters. Instead, the focus has now shifted back to geopolitically related supply concerns, particularly involving Russia, Iran, and Libya, the latter, after its eastern government said it could take precautionary measures, including a force majeure on oil fields,' Ole Hansen, Head of Commodity Strategy, Saxo Bank, said in a note.
Amid shifting geopolitical landscapes and complex global economic conditions, oil continues to be one of the most closely watched and volatile commodities.
George Khoury, Global Head of Research and Education at CFI, said: 'When it comes to oil prices, several key factors must be closely monitored. These include decisions made by OPEC, developments in global geopolitics, and shifts in economic cycles — whether recovery, slowdown, or the risk of recession. Each of these elements directly influences the trajectory of oil and energy prices. Geopolitical developments, in particular, can have a pronounced impact.' Earlier this week, oil prices rose despite an increase in supply, following a notable escalation in tensions between Russia and Ukraine. The event was among the more significant confrontations seen recently, raising concerns about potential further instability in the region. Although peace talks have been ongoing for months, they appear to have produced limited progress thus far.
The implications of persistently low oil prices must be viewed from two perspectives.
From the standpoint of oil-producing countries and companies, lower prices directly impact revenues. 'Each nation has a breakeven range for oil production — countries like Saudi Arabia typically operate within a range of $15 to $25 per barrel, although this varies, for example with their Vision 2030 the breakeven might be even higher more towards a range between $80–$85 per barrel. A sustained drop below these thresholds could significantly affect both national and corporate income,' Khoury said.
The market may be in the early stages of a new commodity supercycle. The current backdrop — marked by political, geopolitical, and financial uncertainty — does not favour energy market stability. If global markets begin to contract or move toward recession, energy demand may weaken. In such scenarios, companies often draw on existing inventories rather than placing new orders, which can lead to downward pressure on prices. While oil has recently seen upward movement, it remains unclear whether this trend is sustainable. Given the level of uncertainty, a more cautious or even bearish energy outlook could emerge in the near term, Khoury said.