After
increasing the crude oil production target by 548,000 barrels per day for
August, OPEC+ countries have now agreed to increase production by another
547,000 barrels per day starting in September. This move will effectively
reverse the production cuts implemented in early 2023, which totaled 2.2
million barrels per day.
What is
striking is that the decision comes amid clear signs of weakness in the US
labor market — to put it mildly — which calls into question the true strength
of the US economy beyond GDP figures. At the same time, ongoing tariff
uncertainties, far from being resolved, threaten to complicate the outlook
further.
The
IMF’s recent upward revision of global growth forecasts for 2025 and 2026 will
also hinge much on resolving ongoing tariff disputes. Should trade
tensions ease and final tariff rates come in lower than initially
threatened, the negative impact on the global economy could be less severe than
anticipated.
Even so,
at least publicly, OPEC+ defends its decision by citing “stable global economic
prospects and solid market fundamentals.” However, other factors are likely at
play, particularly of a geopolitical nature. The cartel may be preparing for
the possible departure of one of the major players in the market.
Specifically,
Trump has threatened to impose new sanctions on Russia if progress toward
ending the conflict in Ukraine stalls. These could include so-called secondary
sanctions, which impose higher tariffs on countries that continue to import
Russian energy. Banning Russian oil would likely boost demand for alternative
sources.
In this
context, it is not surprising that oil
prices rose slightly after the OPEC+ announcement,
although the move had little effect on the S&P 500 or Nasdaq. Prices fell
again after reports emerged that countries like India continue importing
Russian energy. Thus, the market isn’t bracing for the worst.
Now, if
countries indeed stop buying Russian oil out of fear of secondary sanctions, we
could see a sharp spike in oil prices. Whether that spike endures will largely
depend on how much the U.S. can ramp up its own oil production. An escalation
of tensions in the Middle East could further fuel bullish momentum in the oil
market.
For now,
however, markets remain cautiously optimistic, with oil prices continuing their
downward trend. Goldman Sachs, for example, recently reaffirmed
its oil price forecast, projecting Brent crude
to average $64 per barrel in Q4 2025 and $56 in 2026, thus not expecting a
return to above $80.
However, as always, the
outlook depends on rapidly changing circumstances.
This article was written by IL Contributors at investinglive.com.