Increase in petroleum production by OPEC+ set for August, reaching a capacity of 548,000 barrels per day
In a significant move, the OPEC+ alliance, led by Saudi Arabia and eight other member countries, announced an increase in oil production in May 2025, marking the unwinding of historic voluntary production cuts that were initially imposed in 2022 to stabilize oil prices. This strategic shift comes in response to a range of factors, including a supply overhang, demand concerns, and geopolitical volatility.
The decision to ease production cuts, which will be phased out at a pace of up to 180,000 barrels per day (kb/d) monthly through September 2026, is part of OPEC+'s efforts to gradually restore production while maintaining flexibility to respond to market conditions. Key producers like Saudi Arabia and the UAE are boosting their targets significantly compared to 2023, while Russia’s output remains under voluntary caps.
The supply overhang, driven by increased non-OPEC+ production from the U.S., Canada, and Brazil, has put pressure on OPEC’s market share. Weak global demand, exacerbated by U.S. tariffs and economic slowdowns, has kept prices below many producers’ fiscal breakeven points. Ongoing conflicts, such as the 12-day conflict between Iran and Israel in the strategically important Strait of Hormuz, a chokepoint for about one-fifth of the world's oil supply, have further introduced uncertainty into global supply chains.
OPEC+ has adopted a flexible approach, holding monthly meetings to review market conditions and adjust output. For example, in August 2025, the group will increase production by 548,000 barrels per day from July levels, with the possibility of pausing or reversing boosts depending on evolving market developments. This flexibility is intended to help the group support oil market stability.
However, the accelerated supply increases have led to sharp declines in oil prices as concerns over a potential oversupply and glut intensify, especially with strong non-OPEC production and weak Chinese demand. Saudi Arabia, in particular, is willing to tolerate lower prices in the short term to recapture market share from U.S. shale producers and address competition, despite needing higher prices to balance its budget.
The increased supply and resulting lower prices are reshaping energy equity valuations and commodity investment strategies, with volatility expected as markets adjust to new production norms. Analysts warn that further increases could tip the market into surplus, leading to additional downside risks for oil prices unless demand picks up or supply growth slows.
In summary, OPEC+'s current strategy aims to gradually restore production while maintaining flexibility to respond to market conditions. This is expected to keep a lid on oil prices, support market stability, and help the group retain influence amid shifting global demand and supply dynamics. However, questions remain about whether OPEC+ will target the next tier of 1.66 million barrels after unwinding the full 2.2 million barrels per day of voluntary cuts, and if there is enough demand to absorb it.
The decision to gradually restore OPEC+ production, as part of their strategy, is aimed at maintaining flexibility in response to market conditions, which includes the energy sector and finance, given the impact of oil prices on the global economy. As key producers boost their targets, the increased supply has put pressure on prices, reshaping energy equity valuations and leading to volatility in the finance industry.
