The oil-producing cartel OPEC+ seems to have a new mantra right in time for the summer: Just go with the flow. And right now, the oil pumps are flowing.

On Sunday, leaders of the 22-nation group will meet via video conference to agree on output levels for the coming August, and most industry observers expect it will continue hiking output levels in line with the already marked increase in production seen so far this summer. Still, experts warn the group could eventually receive a crude awakening for its newfound free-flowing attitude.

Flood the Zone

After roughly two years of cutting production to prop up falling prices (and even going so far as punishing members who stepped out of line), the oil cartel this year is facing a new problem: shrinking market share, thanks to a flood of new supply from US shale producers. In fact, US crude oil production hit an all-time record in April, according to recent data released by the Energy Information Administration. OPEC+ responded by promptly agreeing to increase production by 411,00 barrels per day in each of May, June and July — a much faster acceleration than agreed to previously.

Evidence suggests many nations have pushed past even those boundaries. De facto group leader Saudi Arabia as well as neighbors Kuwait and the United Arab Emirates spent last month loading 11.9 million barrels of crude oil a day onto tankers, according to ship-tracking data compiled by Bloomberg, marking the highest rate since April 2023. Member nation Kazakhstan, which has developed a reputation for excess pumping, matched an all-time high in production in June, according to a source who spoke with Reuters.

The supply surge proved enough to tame prices even as geopolitical conflict rattles the region:

• Brent crude prices ticked up slightly on Tuesday and Wednesday due to some positive demand indicators, such as recent data from Caixin that showed China’s manufacturing activity swung back to expansion territory in June. Still, Brent crude prices closed at $69 per barrel on Wednesday, well below the more than $80-per-barrel mark seen after the US conducted air strikes in Iran last month.
• “We still think OPEC’s voluntary producers will proceed with another accelerated three-month phase-in of barrels, even with the sharp selloff in prices following the Iranian climb-down and subsequent ceasefire,” Helima Croft, commodity strategy head at RBC Capital, wrote in a report seen by Bloomberg.

Oversupply and Demand: The uptick in supply may not keep oil prices suppressed for long, however, according to Stan Majcher, portfolio manager and veteran oil industry observer at Hotchkis & Wiley, who told MarketWatch Wednesday that a natural decline in the rate of production will ultimately offset a near-term output increase and tighten global inventories. Which means that, eventually, the “price of crude oil will rise as the market realizes that it is difficult to oversupply the market other than in the short term, and that global [production] decline rates will be difficult to overcome,” Majcher said.

Heads are rolling at Microsoft at levels that would put Robespierre to shame.

The Washington-based tech giant confirmed Wednesday that it was laying off more than 9,000 employees in yet another round of cuts amid the tech sector’s multi-year effort to reduce headcounts.

Tweaked Code

Microsoft said cuts would affect multiple divisions, geographies and roles, as first reported by the Seattle Times. Microsoft Gaming is included in this round’s culling; it is not yet clear what teams in the company will take the biggest hit.

The Verge on Wednesday republished an internal memo that Xbox chief Phil Spencer sent to employees, saying that the Gaming team will “end or decrease work in certain areas of the business and follow Microsoft’s lead in removing layers of management to increase agility and effectiveness.”

This month’s round of layoffs eclipses termination notices handed out to some 6,500 Microsoft employees in May and June, though it’s smaller than its 10,000-employee reduction in 2023.

AI and hiring binges during the pandemic have been cited as the driving force behind the pace of layoffs in the tech sector, but a small provision tucked into the 2017 Tax Cuts and Jobs Act (TCJA) may also have had a hand in the tech sector’s en masse move to reduce its workforce, according to Quartz. Blame it on the tax code:

• To offset the revenue impact of the corporate tax cuts rolled out during President Trump’s first term, lawmakers tweaked Internal Revenue Code Section 174, a nearly 70-year-old provision that allowed businesses to deduct research and experimental expenses in the year they were incurred.
• Deductible expenses included materials and supplies, patents, operational facilities and wages paid to employees (full-time, part-time or under contract) engaged in or supervising qualified research. Businesses were required to spread out those deductions over several years when the revised tax code took effect in 2022, likely altering cash flow plans substantially.

Perhaps it isn’t a coincidence that layoffs in the tech sector started to accelerate in the second quarter of 2022 after a brief surge in the early part of the pandemic. Cullings peaked in the first quarter of 2023, when 167,574 people were dismissed, according to Layoffs.fyi, an independent firm tracking job losses. So far this year, 63,823 tech employees have been laid off, not counting Microsoft’s latest news.

A Key Indicator: Thursday’s June jobs report will be one of the last labor market signals taken into consideration before the Federal Reserve’s monetary policy committee meets in July to set interest rates. Even if headline figures blow past economists’ estimates for 110,000 jobs added, proof of weakness may come later — the Labor Department has been revising monthly employment figures downward for January through April. An immediate cut to rates looks unlikely anyway, with traders placing odds of a 25-basis-point cut at 23.3%, according to CME FedWatch.

Americans aren’t cracking open enough cold ones for Constellation Brands. The Corona parent reported this week that its net sales slid 6% in the spring quarter as shoppers bypassed the alcohol aisle.

In recent years, Constellation’s beer portfolio — which includes America’s No. 1 brew, Modelo Especial — has made up for plunging sales in its wine and spirits segment. But not this time: Beer sales, which account for 80% of Constellation’s revenue, fell 2%.

Big Booze is busy sussing out why Americans are cutting back.

Priced Out of Drinking

Constellation CEO Bill Newlands blamed, in very CEO terms, “non-structural socioeconomic factors” for the company’s not-so-frothy sales. A survey from the company found that people are tightening their beverage budgets, hosting fewer social gatherings, and to paraphrase, simply aren’t party-rocking like they used to.

However, Newlands said shoppers’ spending on beer relative to their total grocery bills hasn’t fallen, meaning Americans could be simply spending less overall — but are still interested in imbibing. A recent survey from market research firm IWSR may back that assumption up:

• More 21+ Gen Zers are drinking, with 73% telling IWSR they’d had a drink in the past six months, up from 66% two years ago. That’s the biggest increase of any generation, and IWSR said it shows Gen Zers weren’t abstaining by choice but because they weren’t making enough money; as they get older and earn more, they’ll spend more on booze.
• The sober-curious trend is often associated with health consciousness, but IWSR’s survey suggests it may be more about cost. That would be big for the booze industry, as it would indicate a trend tied to current events rather than a long-term societal shift. For now, global alcohol sales remain down, falling 2% in 2024.

Cerveza Struggles: Constellation, which specializes in Mexican brews, is also coping with canned-beer tariffs that started in April, as well as higher aluminum duties. And last quarter, Constellation reported that beer sales had declined the most in areas with large Hispanic populations. Hispanic consumers make up about half of Constellation’s beer sales, the company said. Still, Constellation expects to make a modest comeback this year. The company maintained its full-year guidance this week, predicting sales will range between a 2% decline and a 1% increase from last year.