The Numbers Look Bad for Oil Prices. Traders Don’t Seem to Believe Them.

OPEC wants to up production. The Dangote Industries oil refinery outside of Lagos, Nigeria. (Tom Saater/Bloomberg)

Traders are skeptical about how much oil OPEC can pump, and their disbelief is keeping oil prices elevated.

OPEC and its allies are on the brink of restoring 2.2 million barrels of oil production to the market a day above last year’s levels—a flood of fossil fuels at a time when global demand for oil is barely rising. Big OPEC producers like Saudi Arabia, and a larger group that includes Russia and is known as OPEC+, announced its latest move on Sunday, vowing to bring back 548,000 barrels of production that its had withheld since 2023. Normally, that kind of increase would crash the oil market, because it would cause supply to far outpace demand.

But oil prices have remained relatively elevated considering the circumstances. Brent crude , the global benchmark, was trading down 0.7% on Monday, to $69.18 per barrel. Oil stocks are having a mediocre year, with the Energy Select Sector SPDR exchange-traded fund down 1.5%, but it would be much worse if oil prices were stuck below $60.

One big reason that oil prices have stayed up is that traders don’t think OPEC can actually ramp up production much. “As we continue to point out, the actual increases since April have been smaller than the headline number,” wrote RBC Capital Markets strategist Helima Croft.

Some countries, such as Russia and Saudi Arabia, have less capacity to increase oil production than official statistics indicate, JP Morgan strategist Natasha Kaneva said. Saudi Arabia, for instance, can’t easily ramp production above 10.5 million barrels a day, even though its max production was expected to be closer to 12 million, she said.

If OPEC were indeed bringing back 2.2 million barrels a day, prices would invariably be much lower. So far this year, oil demand is up about one million barrels a day, so there’s no way that the market could absorb all that extra oil. U.S. production is also at record highs, based on May monthly data from the Energy Information Administration.

Still, analysts expect all the extra production on the market to eventually cause prices to fall more dramatically. S&P Global Commodity Insights predicts prices will fall below $60 by the fourth quarter.

Write to Avi Salzman at avi.salzman@barrons.com