Another OPEC production hike leads oil market to surplus — UBS

On Saturday, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) announced a decision to accelerate the restoration of previously reduced volumes of oil production in August.

According to the OPEC+ position, the reason for their optimism regarding crude consumption is strong summer demand. For example, US crude stocks at the Cushing hub are declining, oil price spreads do not indicate a current glut, and diesel inventories in America are falling.

The alliance also pointed out their ability to change production policy depending on market conditions. 

As Bloomberg notes, the move came as a pleasant surprise for consumers and marked a victory for Donald Trump, who promised to cut fuel prices in his election campaign. However, the agency emphasizes the difficulties associated with this decision for all oil producers.

According to estimates of Giovanni Staunovo from UBS, at the moment, the oil market remains tight and can absorb the increased supply. However, in his opinion, over the coming 6–12 months, there are growing risks of weakening of the market's tight balance, with associated emergence of a surplus and a significant decline in prices.

Besides, as reported by Bloomberg, OPEC+ is also considering a production increase in September.