In a meeting abruptly rescheduled two days early, the Saudi Arabia-led Organization of Petroleum Exporting Countries announced Saturday it would boost its production quota. The move marks the third straight monthly increase, placing the global oil industry on price-war footing.
U.S. oil stocks showed only a modest reaction to the news. Chevron, Exxon Mobil, Occidental Petroleum and APA were among the key movers. Several international tanker fleet operators, led by Teekay Tankers and International Seaways, rallied on the news.
U.S. crude oil futures settled down 2.2% at $57.04 per barrel on Monday, another four-year low. Brent crude dropped 1.7% to $60.23.
The Saudi-led OPEC meeting was originally scheduled for Monday, but moved ahead with "less than a day's notice" to Saturday, according to Bloomberg. The move led to a 411,000 barrel per day production increase for June.
That puts the total increase in the output target for the group for April, May and June at 960,000 bpd. That increase marks an unwinding of 44%, Reuters reports, of the 2.2 million barrels per day the group had announced following the pandemic era falloff in oil demand. OPEC had joined with other non-U.S. oil allies led by Russia in working to cut production and prop up oil prices after the global Covid measures led to a collapse in the oil market.
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Part of the motive behind the unexpected increase was to lean on Iraq and Kazakhstan. Both countries have reportedly been producing above their agreed-to production caps, giving them a larger than agreed-to portion of the market's revenue.
There is also the matter of challenging U.S. capabilities.
The U.S. set a record for monthly oil production of 13.45 million barrels per day in October. It has since hovered just below that level, and U.S. producers have begun to discuss the likelihood of a peak in Texas' Permian Basin, the premier production region of the U.S.
Russia amplified the Saudi message, with Deputy Prime Minister Alexander Novak expressing unity in the OPEC+ strategy.
"Russia, Saudi Arabia, the United Arab Emirates and Kuwait could all produce much more today …" according to a Bloomberg report of a Russian State TV broadcast from the meeting. "But we are holding back production."
In addition, an oil price war typically leads to an increase in global oil market share for Saudi Arabia, arguably the world's lowest cost producer of oil.
The Trump-Iran Connection
President Donald Trump opened a significant market share opportunity on Thursday, just before OPEC rescheduled its meeting.
A social media post from the president said all purchases of oil from Iran must stop immediately. "Any country or person who buys any amount of oil or petrochemicals from Iran will be subject to" immediate, secondary sanctions, the post said.
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The move, an effort to create added leverage in ongoing U.S.-Iranian negotiations, added to Trump administration sanctions imposed in February and tightened in early April.
It is also a direct increase in leverage against China, which is the predominant buyer of Iranian oil.
The suddenness of the announcement also underscores the fact that the White House's focus will be squarely on the Middle East in the coming weeks. Defense Secretary Pete Hegseth plans to visit Israel beginning May 12. Trump is expected to arrive in Saudi Arabia, his first official trip abroad as president, on May 13.
A summit of Persian Gulf state leaders is set for May 14.
Oil Stocks
Among stocks, energy names traded unevenly lower on Monday. Occidental Petroleum and APA Corp. fell hard early. Occidental ended the session down 4.4% at 38.81. Trading may have been influenced by Saturday's retirement announcement from Warren Buffett, whose Berkshire Hathaway is a key investor in Occidental.
APA dropped 5.8% to 15.50. ConocoPhillips shed 4.2% to 87.61.
Diamondback Energy, Oneok and EOG Resources all ended down around 2%.
Exxon Mobil dropped 2.8%, Chevron ceded 2.2%, both in light trade.
Among other oil stocks, tanker fleet operators Teekay, International Seaways and Frontline rallied. Teekay closed with a 4.7% gain to 46.17. International Seaways added 5.4% to 36.42. Frontline ended 3.9% higher at 17.79.
