Oil prices headed for second weekly drop as OPEC may hike July output

Oil prices were set for a second straight weekly decline on Friday. 

Investors are considering a possible larger OPEC+ production increase in July, while evolving US tariff policies add uncertainty following recent legal developments.

At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $60.66 per barrel, down 0.4%. Brent crude oil on the Intercontinental Exchange was down 0.9% at $62.79 a barrel. 

Oil prices turned negative following a Reuters report suggesting that OPEC+ might consider a larger increase in July oil production than the 411,000 barrels per day agreed for May and June.

Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, said in a note:

Anticipation is high in the oil market as it awaits the decision on Saturday from the eight nations in the Organization of the Petroleum Exporting Countries and allies participating in voluntary production cuts.

Kazakhstan dilemma

The press statement following Wednesday's OPEC+ meeting was extremely short.

OPEC’s Joint Ministerial Monitoring Committee maintained the status quo on production decisions earlier this week.

According to delegates, a further increase in production is on the cards.

Kazakhstan's refusal to decrease its oil production is increasingly probable, especially considering recent pronouncements from Energy Minister Yerlan Akkenzhenov, who has reportedly already communicated this decision to OPEC.

International firms control roughly 70% of Kazakhstan’s oil output and are not subject to any binding obligations.

The minister stated that additional production increases remain possible starting in September.

Kazakhstan's Deputy Energy Minister indicated that OPEC+ is likely to announce another production increase on Saturday, though the specific amount is still under discussion, with potential figures of 400,000, 500,000, or 600,000 barrels per day being considered.

“If production in July were to increase even more than in previous months, oil prices, which have already fallen slightly in the run-up to the meeting, are likely to come under further pressure,” Nguyen added. 

David Morrison, senior market analyst at Trade Nation said:

Geopolitical factors

Meanwhile, the geopolitical factors have kept the slide in prices in check. 

The US administration has extended the license of an American company to continue oil production in Venezuela, permitting the company to sustain a basic level of activity there.

While prohibiting the company from exporting oil, it has simultaneously allowed other activities.

The potential extension of the existing production and export license was a topic of discussion, so this development likely disappointed some market participants.

Moreover, amid escalating tensions following Russia's recent attacks on Ukraine, US President Donald Trump has strongly condemned President Vladimir Putin and warned of impending sanctions targeting Russia's energy sector. 

These developments have significantly diminished the likelihood of an imminent easing of existing energy sanctions, a possibility that appeared more plausible just weeks prior.