LONDON/ MOSCOW/ BAGHDAD, Sept 7 (Reuters) - In a significant development for the global oil market, OPEC+ has reached an agreement to increase oil production starting in October. This decision, driven by the organization's leader, Saudi Arabia, aims to regain lost market share while simultaneously slowing the pace of increases compared to previous months. This cautious approach comes in response to anticipated weakening demand for oil globally.
Since April, OPEC+ has been gradually increasing production after years of cuts aimed at stabilizing the oil market. However, the latest decision to boost output has taken many by surprise, particularly as a potential oversupply looms in the northern hemisphere during the winter months.
During an online meeting held on Sunday, eight members of OPEC+ agreed to raise production by 137,000 barrels per day starting in October. This figure is significantly lower than the monthly increases of approximately 555,000 bpd in September and August, and 411,000 bpd in July and June. The recent agreement marks the beginning of unwinding a second tranche of cuts, totaling about 1.65 million bpd, more than a year ahead of schedule. The group has already completely reversed the first tranche of cuts, which amounted to 2.5 million bpd since April, representing roughly 2.4 percent of global oil demand.
Jorge Leon, an analyst at Rystad and a former OPEC official, commented on the significance of this increase, stating, “The barrels may be small, but the message is big.” He emphasized that this increase is less about the actual volume produced and more about the signaling effect—OPEC+ is prioritizing market share, even if it risks softer oil prices.
OPEC+, which includes the Organization of the Petroleum Exporting Countries, along with Russia and other allied nations, has found it relatively easy to raise oil production during periods of growing demand, particularly in the summer months. However, the real challenge will emerge in the fourth quarter, as expected demand begins to slow. OPEC+ has made it clear that it retains the flexibility to accelerate, pause, or even reverse production hikes in future meetings, with the next gathering of the eight countries scheduled for October 5.
The decision to increase output comes at a time when Saudi Arabia has been actively seeking to penalize member countries like Kazakhstan for overproduction. Additionally, the United Arab Emirates has been expanding its production capacity and aiming for higher targets. Earlier this year, pressure from U.S. President Donald Trump prompted OPEC+ to boost output in an attempt to reduce domestic gasoline prices ahead of the elections.
The increases in oil production have contributed to a decline in oil prices, which have fallen by approximately 15% this year, leading to reduced profits for oil companies and resulting in tens of thousands of job cuts across the industry. Despite this decline, oil prices have not collapsed, currently trading around $65 a barrel, supported by ongoing Western sanctions on Russia and Iran. This situation has empowered OPEC+ to continue with its strategy of increasing output.
However, it is important to note that OPEC+'s production hikes have often fallen short of the pledged amounts. Most member countries are currently operating near their production capacities, meaning that only Saudi Arabia and the United Arab Emirates have the ability to introduce additional barrels into the market. OPEC+ has two layers of production cuts in place, including the 1.65 million bpd cut agreed by eight members and a broader 2 million bpd cut by the entire group, which is expected to remain until the end of 2026.
This ongoing evolution within OPEC+ highlights the complexities of the global oil market and the delicate balance the organization must maintain as it navigates production increases amid fluctuating demand.
