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OPEC+ has made a surprising move to increase oil production starting in October, despite concerns about oversupply. The group, led by Saudi Arabia, is prioritizing regaining its market share in maintaining high prices despite concerns over weakening global demand during the winter months.
This decision indicates continued production increases that began back in April after years of production cuts. Eight members have agreed to raise production output, signaling a change that could have geopolitical and economic implications.
Behind the Production Increase
OPEC+ announced the October production hike during an online meeting on Sunday, September 7th, with an increase of 137,000 barrels per day, lower than the increases of 543,000 barrels per day in August and September, and 411,000 barrels per day in June and July. The increase indicates the change from voluntary cuts totaling 1.65 million bpd by eight members, more than a year ahead of the original schedule. ⁽¹⁾
This year’s increases come as OPEC+ has raised production targets by 2.5 million barrels per day since April, but the group hasn’t provided any clear guidance after October, indicating that the 1.65 million barrels per day plan will be reimplemented gradually and might be modified on new developments.
The third set of cuts, which amounts to 2 million barrels per day across all 22 members, will remain in place until the end of 2026. ⁽²⁾
Capacity Constraints and Actual Output
Global oil markets might not be impacted much by the quota increase, as most OPEC+ members are producing near full capacity, especially Saudi Arabia and the UAE, which can add barrels to the market if needed. Analyst forecasts indicate that the actual October increase could be as low as 60,000 barrels per day. ⁽³⁾
Saudi Arabia has been planning to penalize overproducers like Kazakhstan, while the UAE has expanded its capacity and has pushed for higher targets. The rapid shift from production cuts this year allowed the KSA to better assess members’ production capabilities, which could lead to future quota renegotiations. ⁽⁴⁾
Impact on Oil Prices and Global Demand
Oil prices have declined 15% YTD, reaching lows that have removed energy companies’ profits to 2020 levels and led to job cuts. Brent crude rose 1.36% on Monday at $66.5 per barrel, while WTI rose 1.77% to $62.7 per barrel, supported by the output increases and sanctions on Russia and Iran. ⁽⁵⁾
Source: TradingView Chart: Showing the Price of Brent Crude Oil
OPEC+ found it simple to increase production during the summer, but the fourth quarter could test this strategy as demand slows. OPEC+ believes there is enough demand to consume surplus inventory without leading to disruptions.
KSA Strategic Shift and Geopolitical Ties
Saudi Energy Minister Prince Abdulaziz bin Salman, the architect of the original OPEC+ supply cuts, now appears to be firmly back in taking the lead after spending years battling the group’s breakdown in internal discipline. ⁽⁶⁾
And importantly, this new move gives Riyadh the ability to garner valuable political capital, as US President Donald Trump has urged OPEC to lower oil prices. Saudi Arabia can now show that they are trying to do just that. ⁽⁷⁾
The kingdom therefore appears willing to withstand an environment of low oil prices for an extended period of time, both to make long-term gains in market share and to support its relationship with a key ally. Saudi Crown Prince Mohammed bin Salman is reportedly scheduled to visit Washington D.C. in November.
OPEC+’s new production targets are therefore unlikely to significantly disrupt the oil market. However, the decision could still have long-term consequences considering the geopolitical backdrop.
