Having commenced an increase in oil production back in April after years of cuts to support the oil market, OPEC+ took the decision yesterday to further boost output as its leader, Saudi Arabia, pushes to regain market share.
While much lower than the monthly increases of 555,000 for September and August and 411,000 in July and June, eight members of OPEC+ agreed on Sunday in an online meeting to raise production from October by 137,000 barrels per day.
The unwinding of a second tranche of cuts - 1.65 million barrels per day (mbpd) – over a year ahead of schedule, adds to the first tranche of 2.5 mbpd since April, equivalent to about 2.4% of global demand.
“The barrels may be small, but the message is big,” said Jorge Leon, analyst at Rystad and a former OPEC official.
“The increase is less about volumes and more about signalling – OPEC+ is prioritising market share even if it risks softer prices.”
While raising production when demand was growing in summer was relatively easy, the real challenge for OPEC+ - comprising the Organisation of the Petroleum Exporting Countries plus Russia and other allies – adds Rystad will come in the fourth quarter amid expected slowing demand.
OPEC+ retains options to accelerate, pause or reverse hikes at future meetings and scheduled the next meeting of the eight countries for 5 October.
Ironically, OPEC’s output increase this year coincides with recent attempts by Saudi Arabia to punish other members, such as Kazakhstan, for overproducing, while the United Arab Emirates (UAE) has built new capacity and sought higher targets.
It’s understood that one of the drivers behind OPEC’s decision to reverse former oil supply tightening was pressure on the group by U.S. President Donald Trump to boost output as he sought to fulfil his election promise of lower gas prices.
As a result of these increases, oil prices have fallen by around 15% so far this year, pushing oil companies’ profits to their lowest since the pandemic.
However, due largely to Western sanctions on Russia and Iranian oil, oil prices have not collapsed - trading at around $65 a barrel - in the face of output increases, and this has encouraged OPEC+ to go on increasing output.
Meanwhile, with OPEC+ members pumping at near capacity, oil output hikes have fallen short of the pledged amounts.
As a result, analysts have concluded that only Saudi Arabia and the UAE are able to bring more barrels to market.
