The Organization of Petroleum Exporting Countries (OPEC) and OPEC+ on Wednesday decided to gradually start reviving oil production towards the end of the year, despite signs of an impending surplus.
The 23-member oil cartel, in a statement issued after an online monitoring meeting did not announce any alterations to its member-countries’ supply to the international oil markets.
However, OPEC+, led by Saudi Arabia and Russia, targeted a series of monthly increases beginning with a 180,000 bpd hike in December two months later than originally scheduled because of fragile market sentiment.
In the past two days, oil prices have rallied more than five percent after Iran, an OPEC member, launched strikes against Israel in an escalation of the Middle East’s year-long conflict.
But at around $75 a barrel, prices remained 14% down from July as traders focused on weak demand in China and swelling supplies from the Americas.
While the retreat offers relief to consumers after years of rampant inflation and for central banks as they continue to adopt measures to lower lending interest rates, it poses a financial threat to the OPEC and its allies.
It would be recalled that Saudi Arabia slashed growth forecasts this week and projected deeper budget deficits than previously estimated as the cost of efforts to overhaul the kingdom’s economy outpaces revenue.
Meanwhile, Russia has continued to partly rely on energy income to finance President Vladimir Putin’s war against Ukraine.
The JMMC meeting on Wednesday mainly focused on the failure of Iraq, Kazakhstan and Russia to implement their agreed cutbacks, according to delegates who asked not to be identified.
While the countries reiterated their strong commitment to the agreement, they mostly continue to pump above their output quotas and are yet to start extra cutbacks pledged as compensation for cheating.
As the countries held individual workshops to discuss output levels in September, the OPEC+ plans to restore roughly 2.2MMbpd in monthly tranches between December and late 2025, and allow the United Arab Emirates to make an extra hike in recognition of its increased production capacity.
The alliance has several more weeks to decide whether to go ahead with the December increase as their oil Ministers are scheduled to meet on December 1 to review output policy for next year.
With oil markets poised to deteriorate further, analysts including JP Morgan Chase & Co. and Citigroup Inc. have expressed skepticism that OPEC+ will press on with its scheduled supply increases.
Analysts forecast that consumption is due to grow by less than 1 MMbpd in 2025, and supplies are set to swell by 50 per cent more, leaving a glut even if OPEC+ continues to restrain output, according to estimates from the International Energy Agency (IEA).
