By Mike Murphy
Dow Jones Industrial Average futures
The S&P 500
On Saturday, eight members of OPEC+, led by Saudi Arabia, said they would hike August鈥檚 output to 548,000 barrels a day, up from an already upgraded 411,000 barrels a day in May, June and July. It鈥檚 part of a plan to unwind voluntary supply cuts from 2023, and the latest output hike will put crude production on pace to get back up to speed a year earlier than originally planned. The move also serves as a punishment for countries that have been over-producing oil, such as Iraq and Kazakhstan, and an opportunity for oil-producing nations like Saudi Arabia to win back market share from U.S. shale drillers as prices fall.
In a statement, the eight nations cited the 鈥渃urrent healthy oil market fundamentals and steady global economic outlook.鈥
West Texas Intermediate crude for August
But despite the latest production hikes, it may be difficult to create an oversupply of oil. Stan Majcher, portfolio manager at Hotchkis & Wiley, told MarketWatch earlier this month that natural declines in the rate of production as oil wells age could partially offset the hikes in the long term.
Read more: Can OPEC+ flood the world with crude? It鈥檚 harder than oil traders think.
Eventually, the 鈥減rice of crude oil will rise as the market realizes that it is difficult to oversupply the market other than in the short term, and that global [production] decline rates will be difficult to overcome,鈥 he said.
Crude prices have been on a roller-coaster ride in recent months amid Middle East tensions, particularly after Israel鈥檚 bombing campaign of Iran鈥檚 nuclear sites in June, which raised fears that Iran could hinder the flow of out moving through the Strait of Hormuz.
But with tensions recently easing and the flow of oil going on uninterrupted, and with the production hikes in recent months, crude benchmarks have declined about 7.5% year to date, and about 20% over the past 12 months.