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Saudi Arabia Swings the Sword: Is OPEC’s Oil Flood Just Getting Started?

• Saudi Arabia leads OPEC’s largest production surge in months - ditching output cuts and flooding the market as oil rivals cheat and global demand softens.
  
  
• This pivot from price support to overproduction could destabilize economies, crush producers, and spark global energy ripple effects.

What you need to know: Crude prices slid below $67 a barrel on Wednesday, pressured by OPEC’s “shocking” June boost of 360,000 barrels a day – specifically led by a surge from Saudi Arabia, bringing total output to 28 million daily. 

Why it matters: OPEC's production jump - its biggest in four months - signals a continued trend in excess oil production (reversing the years of oil cuts to try and lift prices higher). Saudi Arabia - after watching rivals grab market share - is done playing defense. Riyadh is now leading the charge to flood the market, even as global demand weakens and inventories swell. That means more oil sloshing around just as the world needs less of it. This will continue pushing oil prices lower – which is welcome news for consumers. But for producers - and oil-dependent countries - it’s a blow to revenues and economic stability.

Now the Deep Dive: The dynamics in the oil market are getting more interesting by the week.

After tensions between Israel and Iran sparked a spike in crude - driven by fears that Iran would shut the Strait of Hormuz (a vital oil transit chokepoint) - prices are falling again as a cease-fire holds.

Now, the real story is about supply. And it’s ramping up - fast.

See, back in April, OPEC+ (which includes Russia and some west Asian countries) dumped 4x more oil into the market than analysts expected, gutting the Saudi-led strategy of cutting output to support prices.

Then came another “surprise” this week as the wider OPEC+ group stunned traders again by agreeing to boost production for May, June, and July - at 3x the originally planned pace.

Now, if you read last year’s “OPEC’s Prisoner’s Dilemma: Why Saudi Arabia May Flood the Oil Market (Again),” you saw this coming. I argued that rising U.S. and Brazilian output, plus cheating within OPEC, meant Saudi Arabia’s price-support strategy was doomed. And that a flood of oil was more likely (lower prices) than further cuts (higher prices).

Well, that’s exactly what’s happening.

Saudi Arabia is pumping again. They’ve had enough of playing chump while others cheat and chip away at their market share.

• For instance, look at Kazakhstan - the chief offender. It’s been blowing past its OPEC+ quotas - hitting an all-time high of 1.88 million barrels a day. As one analyst put it, “Kazakhstan is pumping now and daring anyone to stop it.”¹

So why should Saudi Arabia keep cutting production while others cash in?

This is the hard reality Riyadh is facing. Remember, OPEC once controlled about 70% of the oil market back in the 1970s. Today, it’s closer to 25% as rivals have chipped away at their dominance². Put simply, OPEC and Saud Arabia don't have as much oil influence as they once did.

So, what’s the good, the bad, and the ugly here?

The good: Cheaper oil is a win for consumers. Lower gas prices ease inflation, reduce cost of living, and leave households with more money to spend elsewhere.

The bad: Producers get squeezed because lower oil prices hurt profits - which can lead to layoffs, stock slumps, and bankruptcies in the energy sector.

The ugly: Some entire nations suffer when oil revenue dries up.

• The IMF now forecasts Nigeria’s budget deficit will surge to nearly 5% of GDP - well above target - due to falling oil prices³. Thus leading to greater deficits, higher cost of living, and currency risk.
  
  
• Kazakhstan - yes, the same one overproducing - is dangerously reliant on oil. About 44% of its state budget comes from oil and gas. The sector also accounts for 35% of its GDP and 75% of exports. Thus a plunging oil price could cause serious blowback.

The point is, when oil crashes, it doesn’t just take down companies - it can destabilize governments (especially emerging markets). But the U.S. isn’t immune either, since it’s now the largest oil producer in the world.

I expect talk of further oil cuts at the August OPEC+ meeting – keeping this trend going.

But as always, time will tell.

Figure 1: Bloomberg, July 2025

The Buy Now, Pay Later (BNPL) Blind Spot: How Phantom Debt Is Catching Up with Consumers - But Also Offers Upside

• FICO will include BNPL data in credit scores starting late 2025, finally exposing the fast-growing “phantom debt” hidden from lenders.
  
  
• With 1 in 4 BNPL users now financing groceries and late payments rising, signs of consumer strain are mounting beneath the surface.

What you need to know: FICO will roll out new credit scores later in 2025 that include Buy Now, Pay Later (BNPL) data - giving lenders visibility into a fast-growing but previously opaque area of consumer borrowing. This move marks a major shift, as repayment behavior on BNPL loans will now directly influence credit scores for the first time⁴.

Why it matters: BNPL’s ease of use has led many consumers to overspend - sometimes juggling multiple installment plans for everyday essentials like groceries (which is worrying) and creates a ballooning “phantom debt” problem that remains largely invisible to lenders and regulators. By incorporating BNPL data into credit scores, FICO’s new model aims to close this blind spot, offering a clearer picture of consumer risk - but progress may be gradual given the complexity of credit reporting systems and how it can affect individual credit scores.

Now the Dunham Deep Dive: After the surge in BNPL plans over the last few years, there’s been growing concern about the “phantom debt” outstanding

• Put simply, phantom debt is the growing pile of BNPL obligations that don’t show up on traditional credit reports. That’s because most BNPL lenders don’t report to bureaus like FICO - meaning someone could owe hundreds (or more) through these plans, and lenders would have no idea until it’s too late.

Many economists have wondered just how much consumer debt is outstanding once you factor this in. Or more importantly, what does BNPL say about consumer health?

Take this stat: According to LendingTree, about 1 in 4 BNPL users now finance groceries - up from just 14% a year ago. Even more concerning, Americans are using BNPL to cover recurring monthly bills like utilities, internet, and yes, even Hulu.

That’s troubling, especially if BNPL - which was barely a blip before COVID - is now a last resort for people maxed out on credit cards and struggling with inflation or unaffordable housing.

But there’s another angle here too. . .

Used wisely, BNPL can act as a zero-interest carry trade. For example, someone can split payments interest-free while parking cash in a 4.5% yielding money market or CD.

Financially savvy? Absolutely. But it feels a bit dystopian when the upside for some hinges on others racking up late fees just to put food on the table.

Furthermore, there’s potential upside to FICO’s move as reporting BNPL activity could help many - especially younger users - build credit. But mentioning younger individuals, there’s a serious problem I can’t stop thinking about.

According to Morgan Stanley’s latest AlphaWise survey⁵, most BNPL users are between 25–44. And this group already just took a major hit.

• As I noted three weeks ago, due to the student loan delinquencies now being reported back on credit scores after a 5+ year pause, 2 million borrowers experienced credit score dropping 100+ points – with more than 1 million falling by 150+.

And the stress is already showing.

• 41% of BNPL users say they paid late in the past year, up from 34% a year ago. High-income earners, young people, men, and parents of young kids are the most likely to miss payments. But it's important to note that 76% of late payers were only late by a week or less.

This is just another sign of stress - not collapse. But the paper cuts are piling up.

And the consumer's balance sheet is starting to bleed.

Something to keep in mind.

Figure 2: Morgan Stanley, June 2025

When Supply Runs Dry: How the “Copper Squeeze” Is Kicking Off As Stockpiles Deplete

• A historic copper squeeze on the London Metals Exchange (LME) is driving spot prices higher as inventories plunge 80%, now covering less than a day of global demand.
  
  
• With global smelters chasing scarce ore and demand shifting, the copper market faces a critical supply-chain mismatch that could ripple through key industries.

What you need to know: A copper squeeze is hitting the LME - the world's largest exchange for options and futures contracts for base metals - as inventories plunge 80% this year - now covering less than a day of global demand and sending spot prices surging⁶.

Why this matters: Such a massive copper squeeze on the LME is more than just a trading anomaly - but a red flag for global supply chains. With readily available inventories down 80% this year and now covering less than a single day of global demand, manufacturers are left vulnerable to price spikes and delivery delays. The extreme “backwardation” (aka when spot prices trade well above future prices, signaling urgent near-term demand) highlights a deeper shortage unfolding as metal floods into the U.S. ahead of potential tariffs - thus leaving other regions increasingly starved for supply. If this persists, it could disrupt production, inflate costs, and send ripple effects through everything from electronics to clean energy infrastructure.

Now the Deep Dive: I found this news interesting as copper supply hasn’t kept up with demand over the last few years – which has sent copper surpassing record highs (>$5 a pound).

• Put simply, years of underinvestment in supply collided with growing demand.

Now, major inventories are bleeding as supply gets yanked out and priming markets for a monumental copper squeeze.

• What’s a squeeze? It happens when physical supply becomes so tight that buyers scramble for immediate deliveries, sending spot prices soaring above futures. This creates a market condition called backwardation (aka when supplies are tight in relation to demand) - often forcing short sellers to cover at steep losses.

What's unusual is that this squeeze isn’t just limited to near-term contracts - backwardations are showing up in futures dated through mid-2026. That’s a major change from six months ago, when the curve pointed to plenty of supply.

But hold on, while a classic squeeze should excite investors and producers (and terrify consumers and supply chains) – things aren’t that clear.

For instance, copper demand is cooling as global growth slows- making this a war between supply tightness and economic drag.

And then there’s China.

China consumes over 50% of the world’s copper but is now facing its own economic issues.

Meanwhile, its smelters are struggling - not from lack of refining capacity (if anything, they have far too many smelters), but from a shortage of copper concentrate (aka the raw material)⁷.

• Putting it simply, too many smelters, not enough ore. Processing fees have dropped below zero, forcing shutdowns or maintenance to stem losses.

Adding salt to the wound is that a few Chinese smelters - like Jiangxi Copper and Tongling Nonferrous - plan to export at least 30,000 tons of copper to LME warehouses in Asia to ease pressure from a historic market squeeze.

• Why? To cover short positions as surging LME prices strain their hedging strategies.

This mismatch could keep copper prices elevated for longer, as ramping up mine supply takes years - not quarters.

The point is, this copper squeeze isn’t just about a lack of metal - it’s about the fragility of a commodity that’s in the right spot (years of underinvestment) at the right time (surging copper demand).

Keep your eye on it.

 Figure 3: Bloomberg, June 2025 

Anyway, who knows what will happen?

This is just some food for thought as we watch how these trends develop.

As always, we’ll be keeping a close eye on things. Enjoy the rest of your weekend.

Sources:

1. OPEC Tensions Build as Kazakhstan's Oil Production Hits All-Time High | OilPrice.com
2. OPEC | annual-report-2024.pdf
3. IMF Sees Nigeria Fiscal Deficit Widening on Lower Oil Income - Bloomberg
4. Buy Now, Pay Later loans will factor in to Americans’ credit scores | CNN Business
5. Buy Now, Pay Later (BNPL) Growth Raises Concerns | Morgan Stanley
6. Copper Faces Historic Squeeze With LME Stockpiles Depleting Fast - Bloomberg
7. China’s Copper Smelting Boom Backfires Amid Global Supply Strains - The China-Global South Project

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