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OPEC+'s crude production hike comes amid tepid Asian demand for oil: Russell

The crude oil markets pay attention to what OPEC+ has to say, but less so to what they actually do when it comes down to supplying the world's biggest commodity.

Eight members of a wider group who had implemented voluntary production reductions met over the weekend to decide on a rise in output of 411,000 barrels per daily (bpd) for July, which would be the third consecutive month of this increase.

Saudi Arabia, Russia, and the United Arab Emirates will each receive more than half the increase in production.

There are still two questions to be answered.

Will the eight parties to the agreement increase their output by the agreed-upon volumes? And if so, will they be able to find buyers for this additional oil?

It's important to note that OPEC+ and most of the market talk about production. However, the key metric for setting the price is the export volume of crude oil.

Saudi Arabia's exports were actually lower in April, at 5.75 million barrels per day, compared to March's 5,80 million barrels per day, according data collected by commodity analysts Kpler.

Kpler data shows that Saudi Arabian exports jumped to 6.0 millions bpd by May and are expected even higher in June. This suggests that there's a delay between the output agreements and exports.

The Russian crude oil exports by sea were 5,07 million barrels per day in March. They remained relatively flat at 5,12 million barrels per day in April before dropping to 4,82 million in late April. This shows that the increase in production agreed upon did not translate into increased shipments.

INVENTORIES and DEMAND

It is still unclear whether additional oil will be needed in Asia, the region that imports most oil.

In a statement released after the May 31, OPEC+ reiterated that it believes the global oil markets have "healthy" foundations, "as reflected by low inventories."

They have maintained this position since April, when they began to ease the voluntary production cuts of 2.2 million bpd.

The Organization of Petroleum Exporting Countries' monthly report for the month of May shows that crude inventories rose by 21.4 millions barrels in March to 1.323 trillion barrels. This is 139,000,000 barrels less than the annual average between 2015 and 2019.

The Organization for Economic Cooperation and Development inventories are below pre-COVID levels, and were rising even before OPEC+ began increasing output.

Inventories are not as visible outside of the OECD, especially in China. China is the largest crude oil consumer worldwide.

Although China does not disclose its commercial and strategic stocks, it is possible to estimate the surplus crude by subtracting the volume of refined oil from the total domestic production and inventory.

China's oil surplus has risen in recent months. It reached 1.98 million barrels per day in April, its highest level since June 2023. This is up from 1.74million barrels per day in March.

China has increased its oil imports since March and April, as it procured discounted cargoes of Iranian and Russian crude.

But it seems that China's appetite has waned for crude in May, despite lower global prices.

Kpler estimates that China's seaborne exports were 9.43 million barrels per day in May, down from 10.46 in April and 10.45 in March.

ASIA IMPORTS

China's lower appetite in May led to a decline in arrivals in Asia. Kpler estimates 24.2 million bpd. This is down from 24,85 million bpd. in April.

Asia's crude oil imports by sea are estimated to be 24.45 millions bpd for the first five month of this year. This is down 320,000 bpd compared to the same period in the previous year.

The demand for oil in Asia has not increased despite the drop of Brent crude futures by nearly 30% between mid-January to the lowest price this year, $58.50 per barrel on May 5.

The impact of lower oil prices is still being felt. While demand could rise in the coming months due to lower prices, it's possible that economic uncertainty caused by President Donald Trump's tariff war has crimped fuel consumption.

Brent futures rose by over $1 on Monday to $63.84 per barrel.

The increase in prices indicates that the market was expecting a higher output from the OPEC+ eight-member group for July.

The Trump trade war has created distortions that have a significant impact on the outlook for demand.

There is uncertainty about the future of supply and whether OPEC+ top producers will seek to increase export volumes or compete for market share.

These are the views of the columnist, an author for.

(source: Reuters)