By Ben Cahill

About the author: Ben Cahill is director for energy markets and policy at the Center for Energy and Environmental Systems Analysis, University of Texas at Austin.

OPEC+ is confusing the oil market -- and not for the first time. Eight members of the Organization of the Petroleum Exporting Countries and allied producers agreed to raise output by 411,000 barrels a day in July, matching the output increases they pledged this spring. But so far, they are failing to deliver. A glut is more likely to come in the fall rather than this summer.

The OPEC+ decision to raise oil production in a weakening macroeconomic climate is puzzling. Is it an effort to regain market share and pressure U.S. shale producers? A means of restoring internal discipline? A way to reset the table for a new production arrangement? Perhaps it is a bad sign that these questions, which cropped up in April, still have no clear answers. OPEC+ derives much of its power from its ability to shape the market narrative. Few are convinced by its current rationale of "healthy oil market fundamentals and a steady global economic outlook."

Part of the confusion stems from the complicated mix of group-wide and voluntary reductions in place. Over the past two years, the biggest producers in OPEC+ have banded together into an informal group dubbed the "Group of Eight." That group has at times decided to make deeper production cuts than official OPEC+ quotas call for, in an attempt to bring the market into balance.

For example, in October 2022, OPEC+ made a collective production cut of 2 million b/d. Six months later, several OPEC+ countries made voluntary production cuts of 1.16 million b/d, alongside a Russian reduction of 500,000 b/d. In November 2023, the Group of Eight agreed to even deeper voluntary cuts of 2.2 million b/d.

That last set of production cuts are now being eased with monthly increases. If the group sticks with the current pace of supply additions, these voluntary cuts will be phased out by October, at least on paper.

However, there is less to the current production pledges than meets the eye. In May, OPEC+ fell well short of its slated 411,000 b/d production increase. Production rose by only about 200,000 b/d, according to a Reuters survey, and Kpler data show crude exports declined marginally.

That is because some countries are moving in different directions, muddying the impact of pledged production increases. Iraq, which typically overproduces, has reduced output; its crude exports have dropped by some 220,000 b/d since February. This is partly a matter of earning goodwill. Better compliance by Iraq today could lead to favorable treatment in the future, when new quotas must be decided before groupwide OPEC+ production cuts expire at the end of 2026.

In contrast, another serial overproducer, Kazakhstan, continues to ignore its OPEC+ reference production volume. Kazakh officials have made it clear that the country will prioritize its national interests as it ramps up output from the Tengiz expansion. At best, Kazakhstan will remain an obstacle to internal cohesion and discipline. But if tensions over cheating continue to grow, it is possible that Kazakhstan will simply quit OPEC+.

These patterns will likely hold in July and August. The announced increases in production should be partly absorbed by stronger domestic seasonal demand in OPEC+ countries, as Saudi Arabia and some of its neighbors ramp up direct crude burn for power generation. Countries like Kazakhstan and the U.A.E. have also been overproducing for months, so the scheduled ramp-up papers over existing volumes. And OPEC states that the current arrangement "will provide an opportunity for the participating countries to accelerate their compensation." In other words, they may under-deliver on an unrealistically high production quota.

But even if the group is falling short of output targets, it is placing pressure on non-OPEC production by signaling a tolerance for lower oil prices. Signs coming from the U.S. must be encouraging to OPEC+ ministers. West Texas Intermediate prices in the $60-$65 per barrel range have led shale producers to drop rigs, trim capital expenditure, and take defensive measures to ensure investors that dividends will be protected. There is growing speculation that shale output will fall this year -- and indeed the U.S. Energy Information Administration has just forecast a plateau and decline in U.S. crude oil production.

OPEC+ may believe that the market will shift in its direction come this fall. Non-OPEC output may disappoint, led by a contraction of U.S. shale. Failed peace negotiations over Ukraine could lead to stronger U.S. sanctions on Russia, which would curtail exports and tighten the market. And most of all, the trade tensions that exploded in April could ease if President Donald Trump backs down from his worst tariff threats.

For many months, the market has discounted potential supply threats from sanctions and tensions in the Middle East -- although this is suddenly changing with the withdrawal of some nonessential U.S. personnel in the region amid rising tensions with Iran. Oil prices briefly climbed above $70 per barrel on the news. Arguably, the oil market is now discounting the prospect of an economic rebound and stronger demand. Perhaps this will be the surprise that vindicates OPEC+, whose demand forecast for 2025 remains notably higher than other agencies.

For now, the fourth quarter looks like the moment of truth for OPEC+. The Group of Eight continues to meet monthly to review market conditions and reserves the right to pause or cancel supply additions. But if the group extends supply additions into the fall, even in the face of an oversupplied market, it will signal that OPEC+ is digging in and preparing to outlast the competition.

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June 12, 2025 13:01 ET (17:01 GMT)

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