Market News

BY  Grant Smith, Sherry Su and Yongchang Chin

(Bloomberg) -- Oil traders expect Saudi Arabia to steer OPEC+ to agree on another supply surge next week as the kingdom continues its campaign to discipline the cartel’s errant members.

Key OPEC+ members will probably agree to hike output in June by significantly more than the scheduled amount when they hold a video conference on May 5, according to roughly 60% of traders and analysts surveyed by Bloomberg.

Earlier this month, the Saudis stunned crude traders by pushing OPEC+ to revive 411,000 barrels a day in May — three times the planned volume — in a move delegates said was intended to punish over-producing members Kazakhstan and Iraq by driving down prices.

There could also be a political backdrop to the decision: Riyadh is seeking to strengthen ties with US President Donald Trump, who has renewed calls for the Organization of the Petroleum Exporting Countries to lower fuel costs. Trump is also striving for a nuclear deal with that could ultimately revive oil exports from the kingdom’s regional foe, Iran.

Crude futures plunged after OPEC+’s surprise pivot, which was announced just hours after Trump inititated a trade war with China and other nations on April 2. Brent contracts briefly crashed to a four-year low below $60 a barrel in the ensuing days, and were trading near $63 in London on Wednesday.

With Kazakhstan making little apparent effort to mend its ways, 13 of 23 survey respondents predict that OPEC+ will green-light another hike similar to the previous 411,000-barrel-a-day surge. Another two forecast the increase would be smaller, but still above the standard increment.

“History shows that when OPEC+ leadership decides to encourage compliance by supply pressure, it does not stop until it achieves its goal,” said Bob McNally, president and founder of Rapidan Energy Advisers LLC and a former White House energy official.

So far, the so-called “sweating” of OPEC+ quota cheats is bearing limited results. While Iraq has pledged to keep reducing oil exports, Kazakhstan’s international partners like Eni SpA say they haven’t been pressed to reduce output.

While the price rout does offer relief for consumers and central banks still feeling the effects of inflation, it spells financial pain for oil producers.

Texas oilman Bryan Sheffield has urged companies to scale back drilling to avert an industry “blood bath,” while consultant Rystad Energy slashed its estimates for US onshore crude growth by more than half. The Saudis themselves aren’t immune, requiring an oil price near $90 a barrel to cover government spending, according to the International Monetary Fund.

“Increasing supply to maximize revenue might be the optimal strategy” for producers, said Natasha Kaneva, head of global commodities research at JPMorgan Chase & Co.

Eight survey respondents forecast that, rather than risk a deeper market slump, OPEC+ will revert to its initial program of modest monthly supply increases in June, set at roughly 138,000 barrels a day.

The coalition had originally outlined a road map for such careful increments back in June, which would gradually restore output halted since 2022 in a bid to shore up prices. But it repeatedly delayed the restart out of concern that, with oil demand growth in China slowing and supply from the Americas booming, its extra barrels would destabilize the market. In early March, OPEC+ finally approved the first in the sequence of hikes.

Such careful adjustments — the hallmark of Saudi Energy Minister Prince Abdulaziz bin Salman for much of his tenure — were thrown out the window earlier this month. To many analysts, the Prince’s current strategy more closely resembles the brief price war waged by Riyadh against fellow OPEC+ leader Russia in 2020.

“Clearly, the calculus is changing,” said Matt Reed, vice president of consultant Foreign Reports in Washington. “Responsible producers are running out of patience with cheaters who keep coming up with excuses. The April decision was a surprise; the May decision feels more like a wake-up call.”

--With assistance from Salma El Wardany, Fiona MacDonald, Nayla Razzouk and Ben Bartenstein.