OPEC+ Considers Slower Production increases Amidst Demand Concerns
Recent discussions within the “OPEC+” coalition suggest a potential shift in strategy, with members leaning towards a more cautious approach to increasing oil production starting in October. Sources speaking to Reuters on Saturday indicated the group is considering slowing the pace of increases, citing weakening global demand as a key factor.
As April,OPEC+ has been steadily unwinding previous production cuts,adding approximately 2.5 million barrels per day – roughly 2.4% of global demand – to the market. This move was largely driven by a desire to regain market share and followed pressure from the US administration to lower crude prices. Current talks center around fully reversing those earlier cuts through gradual monthly increases, with an initial agreement reportedly reached to boost output by at least 135,000 barrels per day beginning next month.
However, some sources suggest the October increase could be more ample, ranging between 200,000 and 350,000 barrels per day, compared to the 547,000 barrel per day increase implemented in September. A significant challenge remains: many OPEC+ members are nearing their maximum production capacity. Consequently, Saudi Arabia and the United Arab Emirates are currently the only nations with substantial capacity to substantially increase crude supply. The group still maintains existing agreements to curtail production – a 1.65 million barrel per day reduction from eight members,and a further 2 million barrel per day reduction across the entire group,extending to the end of 2026.
Market Surplus and Potential for Further Adjustments
Analysts are observing a potential surplus in the market, prompting speculation about further adjustments. Oli Hansen of Saxo Bank noted market signals suggesting a potential re-evaluation of the October plan. Such a move, he argues, would demonstrate a serious commitment to reclaiming market share, even if it means accepting prices below $60 per barrel. arney Lahman Rasmussen of Global Risk Management echoes this sentiment, pointing to OPEC’s own analysis indicating sufficient capacity to absorb increased oil supply in the coming months. This could even led to consideration of a second round of production cuts, reminiscent of the 1.66 million barrel per day reduction agreed upon in Spring 2023.
Despite the production increases, crude prices have remained relatively stable, supported by ongoing geopolitical risks.
Geopolitical Factors and Russian Oil
The ongoing conflict in Ukraine and the evolving relationship between the US and Russia are closely monitored by oil professionals. Efforts by the US administration to mediate between the two countries have so far been unsuccessful, and recent actions demonstrate a hardening stance towards Russian oil. The US imposed increased customs duties on India in August, as a outcome of its continued purchases of Russian crude.during a recent meeting of Ukraine allies,the US administration voiced dissatisfaction with european nations continuing to purchase Russian oil,specifically citing Hungary and Slovakia. A senior White House official indicated a strong call for Europe to cease funding the war by ending these purchases. Pressure was also applied to China, the largest importer of Russian oil, to curtail its support for the Russian war effort.
Reducing Russian exports could perhaps create opportunities for OPEC+ nations to fill the gap. However, Rasmussen suggests Russia may be hesitant to aggressively pursue increased market share, prioritizing the maintenance of high oil prices to finance its military operations in Ukraine.
(Sources: France Press,Reuters,New Arab)
