On September 8, oil prices experienced a notable rebound, closing higher on Monday as they recovered some of the losses incurred the previous week. This increase followed the producer group OPEC+'s announcement of a modest output hike, while investors began to factor in the potential for additional sanctions on Russian crude oil.
OPEC+ signaled plans to further elevate production starting in October; however, the increase was less than what many analysts had expected. Earlier this month, Reuters reported that OPEC+ members were contemplating another hike. According to Ole Hansen, the head of commodity strategy at Saxo Bank, “The market had run ahead of itself regarding this OPEC+ increase. Today we're witnessing a classic 'sell the rumor, buy the fact' reaction.”
As a result of this announcement, Brent crude settled up by 52 cents, or 0.79%, reaching $66.02 a barrel, while U.S. West Texas Intermediate crude increased by 39 cents, or 0.63%, closing at $62.26 a barrel. Both benchmarks had seen gains of over $1 earlier in the trading session. Notably, prices had plummeted more than 2% on the previous Friday, as a lackluster U.S. jobs report cast a shadow over energy demand, contributing to a more than 3% decline for the week.
OPEC+, which comprises the Organization of the Petroleum Exporting Countries along with Russia and other allies, agreed on a production increase on Sunday. Saudi Arabia, recognized as the world's leading oil exporter, responded by reducing the official selling price for its Arab Light crude sold to Asia, illustrating a significant shift in strategy. According to Rystad Energy Chief Economist Claudio Galimberti, “Riyadh and its allies have indicated a decisive pivot: defending market share now outweighs defending prices.” He added that by allowing more supply into a market that is shifting towards surplus, OPEC+ is taking an offensive stance rather than a defensive one.
Since April, OPEC+ has been gradually increasing production after years of cuts intended to stabilize the oil market. The latest decision comes even as concerns grow over a potential oil surplus during the forthcoming winter months in the Northern Hemisphere. The eight members of OPEC+ will boost production by 137,000 barrels per day starting in October, a sharp decline from increases of approximately 555,000 bpd in August and September, and 411,000 bpd in July and June.
Analysts suggest that the impact of the latest production increase may be relatively muted, as some member countries have been exceeding their production targets. Thus, the higher output levels will likely consist of barrels that are already circulating in the market. Furthermore, OPEC announced a compensation schedule for six of its members to address the overproduction issue, indicating that these countries will need to implement monthly cuts ranging from 190,000 bpd to 829,000 bpd to align with their output targets.
In related news, U.S. President Donald Trump indicated on Sunday his readiness to advance to a second phase of sanctions against Russia. This statement marks the closest he has come to hinting at intensified sanctions against Moscow or its oil buyers in light of the ongoing conflict in Ukraine. Analyst Toshitaka Tazawa from Fujitomi Securities noted that expectations of tighter supply due to potential new U.S. sanctions on Russian oil are providing additional support to prices. Energy trader Gunvor’s global head of research and analysis, Frederic Lasserre, warned that new sanctions on Russian oil buyers could disrupt crude flows.
This weekend, Russia conducted its most extensive air assault since the beginning of the Ukraine war, causing significant damage and casualties, including at least four fatalities in central Kyiv, according to Ukrainian officials. President Trump mentioned that individual European leaders would visit the United States on Monday and Tuesday to discuss strategies for resolving the ongoing conflict.
Reporting by Georgina McCartney in Houston and Anna Hirtenstein in London, with additional insights from Yuka Obayashi; editing by Louise Heavens, Susan Fenton, Nia Williams, and Bill Berkrot.
