The crude oil market devotes considerable energy to what OPEC+ says, but perhaps a little less to what it actually does when it comes to the supply of the world's most important commodity.

The eight members of the wider group that had implemented voluntary production cuts met at the weekend and decided to raise output by 411,000 barrels per day (bpd) in July, the third straight month of the same increase.

More than half of the lift in output will be split among the big three of the OPEC+ group, namely Saudi Arabia, Russia and the United Arab Emirates.

However, there are two questions that need answering.

Firstly, will the eight members party to the agreement actually increase output by the agreed volumes, and secondly, if they do will they find buyers for the additional oil?

A point worth noting is that OPEC+, and much of the wider market, talk in terms of production, but the more important metric is export volumes, as it's the amount of crude flowing around the globe that sets the price and the supply-demand balance.

The group's top producer, Saudi Arabia, actually saw weaker exports in April of 5.75 million bpd, down from March's 5.80 million bpd, according to data complied by commodity analysts Kpler.

Saudi Arabia's exports kicked up to 6.0 million bpd in May, the Kpler data showed, and are expected to rise even further in June, suggesting that there is a lag between output agreements and actual exports.

Russia's seaborne exports of crude were 5.07 million bpd in March, remained largely flat at 5.12 million bpd in April and then dipped to 4.82 million bpd in May, showing that the agreed increase in output didn't translate into higher shipments.

INVENTORIES, DEMAND

The question still remains as to whether any additional oil is actually needed, especially in the top-importing region Asia.

In the statement after the May 31 meeting, OPEC+ reiterated its view that the global oil market has "healthy" fundamentals "as reflected in low inventories."

This is the position they have held since they started easing the 2.2 million bpd of voluntary production cuts in April.

However, the Organization of the Petroleum Exporting Countries monthly report for May showed crude inventories in the developed world rose in March by 21.4 million barrels to 1.323 billion barrels, which is 139 million barrels less than the average from 2015-2019.

In other words, inventories in the Organisation for Economic Cooperation and Development are slightly below the pre-COVID average, and are were already rising before OPEC+ started raising output.

Inventories outside the OECD are less visible, and especially in China, the world's largest crude oil importer.

Even though China doesn't disclose commercial and strategic stockpiles, the amount of surplus crude can be estimated by subtracting the volumes processed by refiners from the total available from domestic output and inventories.

On this basis, China's surplus oil has surged in recent months, hitting 1.98 million bpd in April, the most since June 2023, and up from 1.74 million bpd in March.

China increased oil imports in March and April as it secured discounted cargoes from Iran and Russia.

But it appears that China's appetite for crude eased in May, despite the lower global prices.

China's seaborne imports are estimated at 9.43 million bpd in May by Kpler, down from 10.46 million bpd in April and 10.45 million bpd in March.

ASIA IMPORTS

China's weaker appetite in May contributed to a drop in arrivals in Asia, the world's top-importing region, with Kpler estimating 24.2 million bpd, down from 24.85 million bpd in April.

For the first five months of the year, Asia's seaborne crude imports are estimated at 24.45 million bpd, down 320,000 bpd from the same period in 2024.

This means that despite the near 30% drop in global crude benchmark Brent futures between mid-January and the low so far this year of $58.50 a barrel on May 5, Asia's demand for oil hasn't increased.

So far the impact of lower prices has been muted, and while demand may yet rise in coming months in response to cheaper oil, it's also possible that the economic uncertainty unleashed by U.S. President Donald Trump's trade war is crimping fuel consumption.

Brent futures gained on Monday by more than $1 to $63.84 a barrel.

The gain in prices suggests that the market had been expecting a larger output increase from the OPEC+ group of eight for July.

There remains a high degree of uncertainty for the demand outlook, given the distortions being created by the Trump trade war.

But there is also uncertainty over the supply outlook and questions as to whether OPEC+'s top producers will increase export volumes and seek market share over prices.

Source: Reuters