OPEC could raise oil output from July if Venezuelan and Iranian supply drops further and prices keep rallying, because extending production cuts with Russia and other allies could over tighten the market, sources familiar with the matter said.
Venezuelan crude production has dropped below 1 million barrels per day (MMbbl/d) because of U.S. sanctions. Iranian supply could fall further after May if, as many expect, Washington tightens its sanctions against Tehran.
The combined supply cuts have helped to drive a 32% rally in crude prices this year to nearly $72 a barrel, prompting pressure from President Donald Trump for OPEC to ease its market-supporting efforts. OPEC has been saying the curbs must remain, but that stance is now softening.
"If there was a big drop in supply and oil went up to $85, that's something we don't want to see, so we may have to increase output," one OPEC source said.
The market outlook remains unclear and much depends on how far Washington tightens the screw on Iran and Venezuela before OPEC's June meeting, the source added.
OPEC, Russia and other producers, an alliance known as OPEC+, are reducing output by 1.2 MMbbl/d from Jan. 1 for six months. They meet on June 25-26 to decide whether to extend the pact.
A Russian official indicated this week that Moscow wanted to pump more, in comments that a Russian energy source said were aimed at preparing the market for the end of output curbs.
However, President Vladimir Putin seemingly softened that stance.
A second OPEC source said producers "might" pump more if output dropped further from Iran and Venezuela and oil went above $80 by June. If this happened, any increase would be smaller than 1.2 MMbbl/d, the source said
A third OPEC source raised the prospect of amending the deal in June while still extending the pact, citing declines in Iranian and Venezuelan production plus volatility in Libyan supply.
"I expect an extension for a further period, but maybe there will be some adjustment," this source said.
In 2018 OPEC+ decided to increase output at its mid-year meeting, only to return to production cuts in 2019.
Output declines in OPEC because of the supply pact, plus the sanctions on Venezuela and Iran, have exceeded expectations.
Venezuela pumped 960,000 bbl/d in March, down almost 500,000 bbl/d from February, OPEC said in a report on April 10. The report pointed to a slightly under-supplied market in 2019 if OPEC kept pumping at March's level.
The International Energy Agency on April 11 reported an even lower figure for Venezuela's March output and said the country's production is likely to fall further this month.
Adding to the impact of the involuntary declines, top exporter Saudi Arabia has cut production by more than it agreed under the global pact.
A fourth OPEC source said there were talks about ideas such as whether OPEC should continue with the cuts alone, a deal extension of only three months to keep Russia on board or pumping more if prices rise further.
"An increase is on the table, yes, if prices went to $80 and higher," this OPEC source said. "It all depends on where prices are by the end of May and June."
Saudi Arabia can add more oil to the market without adjusting production quotas since the kingdom's output in March was some 500,000 bbl/d below its OPEC target, the source added.
Russia is also ready to boost supplies.
"Russia has started talks about an oil production rise as it can hardly follow the OPEC+ deal," said another Russian energy source. "The companies are struggling to curb production.
U.S. oil rigs rose seven to 387 this week, their highest since April 2020, while gas rigs were unchanged at 104.
The combined oil and gas rig count rose two to 432 in the week to April 9, its highest since April 2020, Baker Hughes said in its weekly report.
U.S. oil rigs fell one to 309 this week, while gas rigs were unchanged at 92.