London/Moscow/Baghdad — Opec+ has agreed to further raise oil production from October as its leader Saudi Arabia pushes to regain market share, while slowing the pace of increases compared with previous months due to an anticipated weakening of global demand.
Opec+ has been increasing production since April after years of cuts to support the oil market, but the Sunday decision to continue to boost output came as a surprise amid an expected oil glut in the northern hemisphere’s looming winter months.
Eight members of Opec+ agreed on Sunday in an online meeting to raise production from October by 137,000 barrels per day, it said in a statement, much lower than the monthly increases of about 555,000 bpd for September and August and 411,000 bpd in July and June.
Sunday’s deal also means Opec+ has begun to unwind a second tranche of cuts of about 1.65-million bpd by eight members more than a year ahead of schedule. The group has already fully unwound the first tranche of 2.5-million bpd 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.”
Opec+, made up of Opec states plus Russia and other allies, found it easy to raise production when demand was growing in summer, but the real test will come in the fourth quarter with expected slowing demand, Leon said.
Opec+ said it retained options to accelerate, pause or reverse hikes at future meetings. It scheduled the next meeting of the eight countries for October 5.
New capacity
Opec’s output increases this year also come as Saudi Arabia has sought to punish other members such as Kazakhstan for overproducing, and as the United Arab Emirates (UAE) has built new capacity and sought higher targets.
Earlier this year, US President Donald Trump put pressure on the group to boost output as he sought to fulfil his election promise to bring down domestic fuel prices.
The increases in output have led to a fall in oil prices of about 15% so far this year, pushing oil companies’ profits to their lowest since the pandemic and triggering tens of thousands of job cuts.
Oil prices have not collapsed, however, trading at about $65 a barrel, supported by Western sanctions on Russia and Iran. That has emboldened Opec+ to continue increasing output.
Opec’s hikes have fallen short of the pledged amounts because most members are pumping near capacity.
As a result, only Saudi Arabia and the UAE are able to add more barrels into the market, analysts have said and data have shown.
Reuters
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.