OPEC+: OPEC+ is expected to approve another major oil output increase of about 550,000 barrels per day (bpd) for September, completing the reversal of earlier voluntary production cuts by eight key members. Since April, the group has been gradually restoring 2.17 million bpd in production, with monthly increases despite declining oil prices. This includes a separate 300,000 bpd quota boost for the UAE, which had long lobbied for a higher production limit. The September hike would bring total output increases since April to 2.47 million bpd, or just under 2.5% of global oil demand. While this marks a significant shift from years of supply restraint, OPEC+ still maintains additional production cuts totaling 3.66 million bpd that will stay in effect through 2026.
Gulf Coast: Fuel oil imports into the U.S. Gulf Coast fell to a record low of 213,000 barrels per day in June, down from 233,000 bpd in May and significantly lower than 430,000 bpd in June 2024. This decline is largely due to tighter global supplies and higher prices for high-sulfur fuel oil, which made it less economical compared to heavy crude. Refineries along the Gulf Coast, which handle over 55% of U.S. refining capacity, have increasingly turned to heavier, sour crude like Mexico’s Maya, which produces more heavy residue that can be upgraded into gasoline and diesel. A sharp drop in Mexican crude volumes to just 22,000 bpd in June also contributed to the lower import figures. Seasonal power demand in the Middle East and long-term impacts of U.S. sanctions on Russian oil have further tightened global fuel oil supplies. Over time, U.S. refiners have adjusted operations to reduce reliance on imported residual feedstocks, helping push Gulf Coast fuel oil inventories to their lowest levels since March 1996.
Israel: Israel launched airstrikes on Houthi targets at three Yemeni ports and a coastal power plant in its first attack on Yemen in nearly a month, citing retaliation for ongoing Houthi missile and drone attacks. The strikes hit the ports of Hodeidah, Ras Isa, and Salif, as well as the Ras Qantib power station, knocking out electricity in Hodeidah. Shortly after, the Houthis claimed to have fired missiles and drones at Israel in response, though no casualties or impacts were reported. Israel also targeted the Galaxy Leader, a ship seized by the Houthis in 2023, which it said was being used as a radar base for tracking maritime vessels. This escalation comes amid ongoing tensions since the Gaza war began in October 2023, with the Houthis frequently attacking Israel and Red Sea shipping in support of Palestinians.
Market Overview: Oil prices mostly recovered on Monday despite OPEC+ announcing a larger-than-expected production increase of 548,000 barrels per day for August. The initial market reaction was negative, but prices rebounded as a tight physical market offered support. Analysts at UBS noted the oil market remains constrained, allowing it to absorb additional barrels without significant downward pressure on prices. The increase returns nearly 80% of the 2.2 million bpd in voluntary cuts from eight OPEC+ producers, though actual output has so far lagged behind planned levels. Most of the added supply has come from Saudi Arabia, which also raised its August price for Arab Light crude to Asia to a four-month high, indicating confidence in regional demand. Goldman Sachs analysts expect another 550,000 bpd increase to be announced for September. Despite supply concerns, oil markets are also being affected by uncertainty over U.S. tariffs, with officials delaying implementation but not clarifying rate changes. Analysts warn that higher tariffs could slow economic activity and oil demand, although dollar weakness is providing some short-term support.
In 2024, the United States imported only 17% of its domestic energy supply, the lowest share since 1985 and half of the record high in 2006. This decline is due to both increased domestic energy production and decreased energy imports over the past two decades. For the third year in a row, the U.S. remained a net energy exporter, with domestic production exceeding consumption and setting records in natural gas, crude oil, NGPLs, biofuels, solar, and wind. U.S. energy supply comes from domestic production, imports, and withdrawals from storage. To compare different energy sources, the Monthly Energy Review uses British thermal units (Btu) as a standard measure. In 2024, total U.S. energy imports were about 22 quadrillion Btu, with crude oil and petroleum products making up 84% and natural gas 15% of the total.
Oil prices rose nearly 2% on Monday, supported by signs of strong demand that outweighed concerns over higher OPEC+ output and potential U.S. tariffs. U.S. West Texas Intermediate crude settled up93 cents or 1.4%, at $67.93. Travel data showed record numbers of Americans traveling for the Fourth of July, indicating robust fuel demand. Despite OPEC+ announcing a larger-than-expected 548,000 barrels per day output hike for August, actual production increases have lagged, with most of the additional supply coming from Saudi Arabia. Market sentiment also improved as the U.S. signaled flexibility on upcoming tariffs, easing fears of demand slowdowns tied to trade tensions.
