Oil prices rebound despite OPEC+ output hike; supply remains tight

Investing.com--Oil prices rebounded from early losses Monday, as traders assessed the overall state of the market even after OPEC+ agreed to a bigger-than-expected production increase next month.

At 08:05 ET (12:05 GMT), Brent Oil Futures expiring in September climbed 0.5% to $68.68 per barrel and West Texas Intermediate (WTI) crude futures gained 0.7% to $66.93 per barrel.

Both contracts jumped between 1% and 2% last week, after nursing double-digit losses in the final week of June.

OPEC+ output boost exceeds forecasts

The Organization of Petroleum Exporting Countries and allies, a group known as OPEC+, announced on Saturday that it will increase oil output by 548,000 barrels per day (bpd) in August.

The hike is larger than the 411,000 bpd increases already implemented for May, June, and July -- each of which was already three times faster than the group’s original tapering schedule. 

The group also warned that it will consider another 548,000 bpd hike for September at the next meeting on August 3.

The decision marks a continued rollback of the voluntary 2.2 million bpd in cuts that major producers like Saudi Arabia and Russia had initiated earlier this year to support prices.

“While there was little doubt that OPEC+ had shifted its policy from defending prices to defending market share, this latest boost solidifies this pivot,” ING analysts said in a note.

“Larger supply hikes increase the scale of the surplus in the oil market later in the year. This supports the view that there’s further downside for oil prices,” they added.

Crude market still tight

However, early losses quickly disappeared as Saudi Arabia raised the August price for its flagship Arab Light crude to a four-month high for Asia, in a show of confidence about oil demand from the world’s top exporter.

"For now, the oil market remains tight, suggesting it can absorb additional barrels," said UBS analyst Giovanni Staunovo.

Additionally, low compliance reduces the real impact of the group’s decisions, according to Nikos Tzabouras, Senior Market Analyst at Tradu.com.

"Moreover, additional output increases may be difficult, as most of the planned hikes have already been implemented, while lower oil prices harm producers. Furthermore, the later implementation date floated by U.S. officials for higher tariffs allows more time for potential trade agreements, which could help mitigate some of the negative economic impact. Even though the geopolitical risk premium has faded for now, it could return, as geopolitical uncertainty continues to persist."

Trump tariff deadline shifts to August

U.S. President Donald Trump said on Sunday that the U.S. was nearing multiple trade agreements and will begin notifying partners of impending tariff increases by July 9, with the new rates set to take effect on August 1.

The revised timeline delays the implementation of tariffs by three weeks, creating the opportunity for further trade agreements.

That said, U.S. tariff worries cloud the global demand outlook, as traders fear trade barriers could slow economic activity and reduce energy consumption.

Ayushman Ojha contributed to this article.