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OPEC+ pumps more oil but is it necessary and at what cost? Russell

After OPEC+'s decision to increase crude oil production, two questions arise: Who will buy the extra crude and will they export the barrels that they claim to be producing?

OPEC+ decided at a weekend gathering to increase production by 548,000 barrels a day (bpd). This is up from the 411,000 bpd that the group approved for May June and July and 138,000 bpd in April.

Eight members of the group will boost production - Saudi Arabia (as well as Russia, Kuwait, Oman and Iraq), the United Arab Emirates (UAE), Kazakhstan, Algeria, Kuwait, Oman and Russia.

The eight countries will have unwound the voluntary 2.2m bpd that they had imposed in an effort to support crude oil prices last year.

OPEC+ cited "steady global economy outlook and current healthy fundamentals of the market" in its statement announcing increased August production, continuing a theme that it has been promoting in recent communiques: the oil market was in good shape.

The reality is not as rosy, however, as OPEC+ portrays it, as the demand for oil in the major consumer countries like China, which is the top importer of the world, has been tepid.

China's crude oil imports rose by just 0.3% or 28,500 barrels per day in the first five month of this year. The official data shows that the total was 11.1 million barrels per day.

The growth rate is expected to increase when the June data are released next week. LSEG Oil Research expects imports to be 11,96 million bpd, up from customs numbers of 11,30 million bpd in June 2024.

China's imports were likely strong in June. However, the reasons for this are not so positive. The reason why refiners bought more crude than intended is because the prices were lower when June's cargoes arrived.

Brent futures, a global benchmark, hit a four year low of $58.50 per barrel on 5 May. They had been trending downwards since early April when cargoes due to arrive in June would have been purchased.

In June, oil imports from Asia, which accounts for 60% of all seaborne crudes, increased. LSEG estimates arrivals at 28,65 million bpd - the highest since January 2023.

The increased imports in June boosted Asia's arrivals to 27,36 million bpd during the first half 2025, an increase of 620,000 bpd compared with the same period the previous year.

In a coincidence, this forecast is in line with the Organization of the Petroleum Exporting Countries' (OPEC) June monthly report which forecasts a demand growth of 630,000 bpd in Asia outside the OECD by 2025.

Prices are key

The question is if imports will increase in Asia in the second half or if momentum from June will fade.

History shows that importers like China and India will tend to reduce imports when prices increase and use up their stockpiles.

China's imports will likely be reduced in August or September due to the brief price spike in mid-June, triggered by Israel's attack on Iran. The United States joined Israel in this action.

Lower oil prices will encourage buyers to buy and build up inventory to increase imports in the fourth quarter.

The ball in this case is largely on OPEC+.

Prices will likely continue to fall if the group produces what its quotas permit and exports it.

According to a July 4 survey, the actual production has so far lagged behind the higher quotas. The five OPEC members in OPEC+ increased output by 267,000 bpd, which was short of the allowed 313,000 bpd.

Saudi Arabia's actions will be crucial, as it is OPEC+’s largest exporter and has the capacity to increase output.

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These are the views of a columnist, who is also an author.

(source: Reuters)