Current price trends are encouraging for OPEC+ to increase supply as planned.

They’re observing an improvement in demand as anticipated for the second half of the year, which typically sees a pickup. If prices remain strong, hovering in the high $80s, this will bolster confidence in increasing supply by the end of Q3. Also to note is that the OPEC secretariat finalized plans for compensation cuts for Iraq, Russia, and Kazakhstan last month. These adjustments will impact the additional supply entering the market. This year, we expect around 180, 000-200, 000 b/d in incremental increases by the end of Q3, and these figures may be lower due to the compensation cuts. So far, all members have demonstrated strong compliance, understanding the consequences of faltering compliance on prices, though the risk remains with tempting high oil prices prompting some members to slightly increase supply.

Geopolitical risk premium as we move through the rest of the third quarter?

The risk remains significant with ongoing conflicts in Gaza and Ukraine. The potential for supply disruptions looms large, despite current market assessments tending to overlook these risks when physical supply shortages aren’t immediately evident. Nevertheless, this backdrop remains pivotal for OPEC+ decision-makers, influencing their cautious approach to policy adjustments.

Do global inventories need to move further for OPEC+ to proceed with volume increases?

The benchmark has always been the five-year average. We’ve seen strength in oil prices due to declining US inventories and OPEC is watching inventory levels. There’s been some frustration within OPEC because previously, market fundamentals weren’t accurately reflected in prices. They felt negative sentiment overwhelmed traders and impacted prices negatively. Historically, it takes time for market fundamentals to align with bullish OPEC policies and now, with inventories decreasing, the market is starting to recognize the tightening conditions. One milestone approaching is the 1st of August, when OPEC+ will hold their JMMC meeting to review market conditions and discuss plans to reintroduce supply into the market.