To The Moon

OPEC+ Oil Production.

On 31 May 2025, it was reported that OPEC+ agreed to hike July 2025 oil output by +411,000 barrels per day (bpd), in an attempt to (a) grab back market share and (b) punish over-producing members.

According to Reuters, 8 of OPEC+ members of the group are unwinding 2.2 million bpd in voluntary curbs they imposed on top of earlier cuts.

Taking the latest announcement into considerations, this would be the 3rd consecutive attempt by OPEC+ to increase oil production in H1 2025. (see above)

Immediate Impact.

As I am holding oil stocks, I am very interested to know how OPEC+ action will affect my investment and whether any follow up action is/are required from my end.

(1) Short-Term:

The 411,000 bpd increase has been widely anticipated by markets, leading Brent crude to rebound by over $1 per barrel after the announcement.

This suggests the hike was already priced in, minimizing immediate downward pressure.

(2) Long-Term Risks:

In Q2 2025, OPEC+’s accelerated production targets with its own agenda’s interests, despite of IEA’s March forecast. (see below)

If global demand weakens (as cautioned & forecasted by the IEA), increased supply could push prices below the $60–$70 range.

This will directly makes it harder for US shale companies to make a profit since their costs are $45–$60 per barrel.

(3) Trump’s “Drill Baby Drill”.

The 5 biggest US listed shale companies (by production) are:

• $Exxon Mobil(XOM)$.

• $Chevron(CVX)$.

• $ConocoPhillips(COP)$.

• $EOG Resources(EOG)$.

• $Pioneer Natural Resources(PXD)$.

Beneficiary / Non-Beneficiary.

Beneficiary.

OPEC+'s increasing oil production, effective since May 2025, is generally beneficial to US economy in terms of easing inflationary pressures, particularly through its impact on oil prices.

When OPEC+ raises output, increase in global oil supply tends to put downward pressure on crude oil prices.

Lower oil prices reduce the cost of gasoline and other petroleum products, that directly affects transportation and manufacturing costs throughout US economy.

This, in turn, helps to slow the rate of inflation, as measured by US Consumer Price Index (CPI) and especially the Producer Price Index (PPI).

For example:

Recent decline in Brent crude below $65 per barrel has:

• Contributed to a slowdown in global inflation.

• Increased disposable income for consumers, allowing more spending on discretionary goods and services.

Although oil prices (in theory) have a clear influence on inflation, its impact on overall US inflation has diminished over recent decades, as US economy has become less oil-dependent.

Oil prices now have a stronger effect on the PPI (wholesale prices) than on the CPI (consumer prices), but lower energy costs still provide some relief to consumers and businesses alike.

Non-Beneficiary.

Needless to say, the non-beneficiary would be US oil producing companies especially shale oil producers where the already razor thin margin is going to be even thinner.

With an expecting supply glut, it becomes a challenge for US oil producers.

As of 10 Jun 2025

With OPEC+’s first production increase effective since 01 May 2025, both XOM and CVX stock prices, have declined and risen by -1.78% and +1.22% respectively. (see above)

On a longer term, differences amongst the top shale oil producing companies may become more apparent.

ExxonMobil.

• With a low debt-to-equity ratio (12.96%) and $6.79 billion cash reserves, CVX is better positioned than its peers to navigate price dips and invest in low-carbon ventures.

• Correlation with Oil Prices: CVX’s cash flow has a 0.585 correlation with Brent prices, making it sensitive to sustained price shifts but well-suited for rebounds.

Chevron & ConocoPhillips.

• Both face similar pressures from lower prices but benefit from their diversified portfolios.

• COP’s focus on low-cost assets (eg., Permian, Alaska) could mitigate risks.

• While XOM’s LNG projects (eg., Golden Pass terminal) provide long-term stability.

In summary, a prolonged price slump of below $60 further strain margins. However, if companies are able to leverage on efficiency gains, it could offer offset relief.

My Viewpoints (mine only).

Global demand for oil is either going to (a) grow at a decelerating rate OR (b) slows gradually over time, resulting in the glut as forecasted by IEA (see above)

It does not help that Trump’s tariffs policies will still cause unrest across the world economies in H2 2025.

If the US enters a recession, oil prices are likely to fall. This is because a recession usually leads to lower economic activity, which reduces demand for oil.

Excess supply and weak demand are not exactly catalysts or good news any oil producing companies. On that note, I think I know what I am going to do.

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