Saudi Arabia is pushing OPEC+ to increase oil production at a faster rate over the next few months. The aim is to regain market share by adding at least 411,000 barrels per day in August and possibly September. This change marks a new strategy for Saudi Arabia. Instead of cutting output to support prices, they are focusing on increasing supply, even if it means lower prices. Some other OPEC+ members, like Russia, Algeria, and Oman, are hesitant about this plan.

High Seasonal Demand

Saudi Arabia believes that high seasonal demand supports this strategy. The next OPEC+ meeting on July 6 will decide production policies for August. So far, analysis shows that Saudi Arabia is shifting from a focus on maintaining oil prices to prioritizing market share. Meanwhile, some alliance members are concerned that flooding the market with supply could drive prices down too much. Russia, for instance, might be worried about meeting short-term budget needs while ensuring long-term export reliability. The short-term plan is clear: an increase of 411,000 barrels per day in August and possibly continuing this into September. This marks a significant policy change and signals a new strategy to influence oil markets. We can make three reasonable assumptions. First, Saudi Arabia is banking on high summer demand to help absorb the extra barrels without causing prices to crash. Second, they are willing to sacrifice some revenue per barrel to secure a larger market presence. Third, the July 6 meeting could highlight tensions within the group, especially if anyone tries to hesitate or reverse these plans.

Broader Pricing Environment

It’s also important to consider the overall pricing landscape: Brent crude prices have varied enough to allow some mild downward flexibility without jeopardizing producers’ financial stability. However, if other countries in the coalition resist and limit their participation, Saudi Arabia may end up shouldering an unfair share of the supply increase, diminishing the overall impact. From a trading standpoint, this blend of differing policies and increased supply could change price dynamics. Short-term spreads will likely reflect changes in inventory levels—something to monitor closely from July into mid-August. This indicates a need to focus on short-term volatility rather than relying solely on longer-term trends. Such interventions may temporarily reduce implied volatility but can lead to larger shifts in actual market movements, as seen during past coordination breakdowns. Monitor whether backwardation softens in the upcoming weeks, especially regarding cargo data from Asia and refinery activity in India and China. On a more detailed level, looking at product crack spreads might help confirm if demand aligns with Saudi Arabia’s expectations. If gasoline and jet fuel margins decline despite increased production, it could suggest that consumption isn’t strong enough to support this new strategy. As the meeting date approaches, pricing for out-of-the-money options on oil benchmarks may start to differ. We should assess if the skew starts leaning towards downside protection, which could indicate broader market sentiment leading up to the decision. Currently, options premiums are moderate, but this could change if outlooks become less cohesive. Tracking open interest build-up around the meeting date may help refine our market exposure. If speculative positions begin to unwind before July 6, it might suggest a shift away from bullish bets—valuable information for market positioning. The clarity of this policy shift is uncommon, but its success relies heavily on coordination and timing. Traders should ensure their models remain adaptable and adjust their position sizes according to incoming data. Future forecasts could change expectations rapidly, and we will need to adapt accordingly. Create your live VT Markets account and start trading now.

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