OPEC Cuts Unraveled, Rigs Drop. The Energy Report 08/04/2025

The oil market is unraveling as OPEC unravels its production cuts. The OPEC voluntary production story is now history and oil price are taking it hard. All eight participating countries have completely rolled back their restrictions, marking a return to OPEC’s usual approach to managing output.

OPEC says it is ready to crank up the oil pumps, officially waving goodbye to their self-imposed production diet. In a virtual gathering that felt more like a group chat than a global summit, Saudi Arabia gave the green light for a monthly boost of 547,000 barrels a day. That’s the end of the 2.2-million-barrel slimming plan starting in 2023. Some say OPEC’s just responding to the world’s insatiable thirst for oil. Others state it is because they are attempting to regain market share oil.

While the headline sounds dramatic, it’s not surprising. The U.S. rig count drops by two to 540, oil producers keep cutting back, suggesting U.S. oil production growth may stabilize. Oil rigs dropped by five to 410, but natural gas rigs edged up by two to hit 124. The frac spread count? It’s crashed down to its lowest point since 2021 according to reports.

Now OPEC says that they’re leaving the door ajar to adjust policy, with 166,000 barrels of paused output still on the table, but don’t expect much action there—that’s likely to end by year’s end.

At the same time, natural gas prices were facing significant downward pressure, with the September contract now at risk of falling below the critical $3.00/MMBtu threshold. John Kemp pointed out at John Kemp Energy that U.S. DRILLING activity is shifting strongly from oil to gas in response to diverging price signals and expectations of a further increase in gas prices in future. The number of rigs drilling for oil has fallen to the lowest for nearly four years while gas rigs have climbed to a two-year high.

However, potential support emerges as extreme heat intensifies and developments in the Atlantic hurricane season introduce new uncertainty to energy markets. Fox Weather reports tropical Storm Dexter formed off the U.S. East Coast in the Atlantic Ocean on Sunday night. As of Monday morning, Dexter was located just over 250 miles northwest of Bermuda and was moving east-northeastward at about 12 mph.  The Fox Forecast Center says that Dexter is forecast to move away from the U.S. coast and stay to the north of Bermuda. While it could strengthen a bit over the next couple of days, Dexter is expected to become a post-tropical cyclone by Wednesday as it encounters increasing wind shear.

As Tropical Storm Dexter moves away from the U.S. East Coast, the National Hurricane Center is also tracking two areas to watch for tropical development in the Atlantic Ocean. One area is located off the southeastern U.S. coast and has a low chance of development over the next seven days. The other area is a tropical wave moving off Africa and into the tropical Atlantic later Monday, which has a 50-50 chance of developing into at least a tropical depression late this week between Africa and the Caribbean islands.

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