Oil Market Update: Tight Despite OPEC+ Adding Barrels

OPEC+ recently announced another production quota increase of 548,000 barrels per day (bbl/d) for August. This marks the fourth consecutive monthly hike, bringing the cumulative announced increase to 1.8 million bbl/d since April. Despite this increase, the WTI crude price is up over 10% since OPEC+ began these announcements. So what explains the disconnect between more potential supply and higher prices?

1. Announced Increases Overstate Actual New Supply

The announced production increases are quotas, not actual production. Some OPEC+ members are already producing above their quotas, while others are underproducing and may struggle to meet the increased quotas, which dilutes the effect of any announced change.

In the table above, it is clear that:

• Iraq and Kazakhstan are both already producing well above their final August quotas. Their quota “increases” are unlikely to result in real additional barrels.

• Russia produced roughly 100,000 bbl/d below its June 2025 quota, according to EIA data. Aging and damaged oil infrastructure may prevent Russia from reaching its August OPEC+ quota target. If that shortfall continues, this could remove as much as 294,000 bbl/d from the expected August increase.

While OPEC+ quota production for August totals 32.3 million bbl/d, actual production in June was already 31.8 million bbl/d. If Russia is unable to meet its future quotas, the additional physical barrels coming online may be much lower than the August target.

2. Spare Capacity Is Quietly Shrinking

With most of OPEC+’s prior cuts now reversed, nearly 2 million bbl/d of paper spare capacity has effectively been removed from the market. At the same time, OPEC+ appears to be shifting how it presents quotas. In a recent podcast interview, a Kpler analyst close to OPEC noted that the group is now referring to the new levels as “production ceilings” rather than “required production,” implying that these targets represent maximum capacity rather than typical output.

This reframing matters, because if these levels are in fact close to maximum sustainable output, it implies OPEC+ may have minimal true spare capacity left. This would remove millions of barrels per day of potential production from OPEC+ and would dramatically tighten oil market perceptions.

3. Saudi Behavior Signals Tight Market Conditions

Most of the real increase in barrels is expected to come from Saudi Arabia, and they recently raised their Official Selling Price (OSP) for Arab Light crude to $2.20 above the Oman/Dubai average. This is a strong signal of underlying market tightness. Given Saudi Arabia’s proximity to key buyers and access to real-time demand data, their pricing decisions are a useful indicator of how tight the market really is.

4. U.S. Drilling Activity Is Falling

U.S. rig counts are falling sharply.

Market pessimism and lower oil prices have led analysts to project that U.S. oil production could flatten or decline heading into 2026. The longer prices stay low, the more drilling slows—especially for high-cost offshore projects. This sets the stage for future supply shortfalls, while lower prices simultaneously stimulate demand by encouraging increased consumption. That consumption tends to be sticky, as behaviors like purchasing gas powered or less fuel-efficient vehicles keeps oil demand higher even after prices rise.

Conclusion: The lower prices go now, the higher—and higher for longer—they go later.

This is the classic oil market cycle: low prices today suppress investment, which leads to tighter supply tomorrow. While it’s possible that oil prices remain muted in the short term, the structural setup increasingly favors higher prices in the next 1–3 years.

The short term bearish case—where supply temporarily outpaces demand—sets up a more violent rebound later. Underinvestment today means that if demand picks up or supply falters, the resulting price spike could be sharp, and historically, investing in oil securities during periods of low prices has led to the greatest subsequent returns.

Opportunity: Higher oil prices and undersupply could rerate oil and gas equities

Oil equities have significantly underperformed the broader market since 2014, creating meaningful potential for outperformance in a sustained bull cycle.

Small-cap and oilfield services stocks, in particular, remain deeply discounted despite playing a critical role in directing capital toward the supply growth needed to rebalance the market. Historically, these segments have led late-cycle rallies, and with valuations at depressed levels, a mean reversion to the upside could drive substantial returns, even if they only catch up to large-cap performance.

Media Update

In June, Josh was featured on the In The Money podcast, where he shared his perspectives on recent M&A and shareholder activism, as well as our shift from natural gas to oil exposure. Later in the month, Josh was hosted on CNBC’s Squawk Box, where he discussed geopolitical risks to oil supply and shared his outlook on market fundamentals.

We also released a podcast version of our recent research piece, Pivoting From Natural Gas to Oil Equities. The podcast reviews our successful late-2024 natural gas call and outlines the rationale behind our recent shift toward oil-focused equities.

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