Oil: OPEC/Russia -- not so fast on oil production increases (Part 1)

I previously wrote that when oil prices started dropping, oil traders were ignoring a key word called "gradual." On Wednesday, May 30th, oil prices turned back up after a Reuters article:

The deal could be extended to achieve its objectives of keeping a balanced oil market, the source said, adding that, when needed, any rise in output would be “in a gradual and deliberate fashion.” . . . The source said any decision to increase output in June would coincide with anticipated higher demand in the second half of the year.

Bloomberg had this interesting point:

Though they’re not always enforced, OPEC’s rules do require policy changes be approved by all members -- many of which would lose out in this case. Outside the Arab members in the Persian Gulf, most countries aren’t able to boost supplies and would face lower revenue if prices slide further.

One also has to wonder if Russia backed off the idea of increasing production as after the announcement there was an impact to their markets. Per OilPrice:

But as oil prices plunged at the end of last week on reports that Saudi Arabia and Russia were considering lifting the production of the countries part of the pact by as much as 1 million bpd, outflows from Russia ETFs intensified and reached their highest level in a year—since June 2017, according to data compiled by Bloomberg.

As you can see via the Reuters article, the word gradual was re-iterated. It seems to have worked in increasing oil prices. Also, the Bloomberg article mentioned something that I hadn't thought about: certain OPEC nations just wouldn't benefit from a boost in supply as they're currently at production capacity. So any increase in capacity, which would decrease price, would impact them as they can't produce additional volume to offset the lower prices.

There's also this interesting note via Platts:

OECD crude oil inventories have fallen below the five-year average -- OPEC's key measure for its production cut agreement -- for the first time since the producer group began cutting back output, a senior OPEC source told S&P Global Platts Sunday. Commercial oil inventories were 20 million barrels below the five-year average, the source said, as officials from OPEC kingpin Saudi Arabia and key non-OPEC producer, Russia indicated Friday they would begin increasing output in the second half of the year. 

Back in mid-April I wrote a blogpost that stated that inventory was 43 million barrels above the 5-year average. I also noted how this inventory was expected to drop by 1.3 million barrels per day. If this is an apples-to-apples comparison (that the previous 43 million barrels above average is the same as the current 20 million below average), the 1.3 million barrels per day drop actually works out well.