The OPEC+ monitoring committee (JMMC) will meet (virtually) on Wednesday to assess the group’s oil production rates and make a recommendation for future production.
The current plan is for OPEC+ to relax its quotas slightly so that the group’s total production rises by 2 million barrels per day starting in August. This gradual increase in production was agreed to back at the group’s April meeting, and was originally supposed to take place in July. However, in early June, OPEC and Russia agreed to delay the production increase until August due to lagging demand.
However, not all of OPEC+ producers will be increasing production come August. Iraq, Nigeria and Angola have all committed to continuing to keep oil production lower for several more months, because these countries did not cut their production sufficiently in May and June. Saudi Arabia has been very concerned with pressuring these countries to adhere to their production cuts and has made a public show of securing statements—especially from Iraq—about their continued commitments to fulfilling their obligations under the OPEC+ agreement.
But the real problem isn’t supply. It’s demand, and OPEC+ may be too optimistic about the world’s ability to consume more oil.
Saudi Aramco’s CEO, Amin Nasser, has been publicly optimistic about rebounding oil demand. On July 1, he said that China’s gasoline and diesel demand has returned to pre-coronavirus lockdown levels and predicted that demand elsewhere would continue to rise, as “more countries will start opening up.” Chinese demand is of particular concern to Aramco, as China is its largest customer.
However, oil demand elsewhere is not showing a stable or consistent recovery. Even though many parts of the United States have relaxed lockdowns, gasoline demand remains far below typical levels for this time of year and in weekly deliveries has not shown a consistent trend upwards. Demand for diesel and jet fuel remains severely depressed. Basing global trends on China’s recovery pattern may not be the best strategy since the United States and other big oil consumers are not following in China’s economic footsteps. China may be ready to consume more oil, but the United States is not.
Oil is a global commodity and has been relatively stable in price for the last month. It is entirely possible that if global demand doesn’t behave the way the Saudis expect it to, putting another 2 million barrels per day of oil on the market at this juncture will exacerbate the oil glut and send prices down again.