Overabundance of Raw Materials Swamps Marketplace

In a move aimed at regaining market share, OPEC+ countries have decided to increase their oil production in the coming months. This decision comes after voluntarily ceding market share to countries in North and South America.

Eight OPEC+ countries, including Saudi Arabia, Russia, Algeria, Iraq, Kazakhstan, Oman, the United Arab Emirates, and two others, will collectively increase their oil production by 137,000 barrels per day (bpd) in October from the required September level. This increase is part of the return of 1.65 million b/d that was voluntarily cut since May 2023.

The production quota for Saudi Arabia has been increased from 9.97 million bpd to 10.02 million bpd, while the UAE's production quota has been raised from 3.37 million bpd to 3.38 million bpd. Russia's production quota in October has been raised from 9.44 million bpd in September to 9.49 million bpd.

The decision to increase production was made considering the stable global economic outlook and favorable market conditions. Russian Deputy Prime Minister Alexander Novak described the decision as "completely market-driven". In an interview with "Russia 24", Novak stated that he sees increased activity in the use of petroleum products worldwide.

The Center for Energy Research (CER) believes the intention of OPEC+ countries to continue increasing production in October indicates a strong desire to sharply restore their share. Igor Yushkov, an expert at the Financial University under the Russian government, stated that the eight countries are returning to the market the volumes that were cut beyond their quotas in 2023.

However, the continued increase in production will put pressure on prices and exacerbate the surplus. By the end of October, the combined oil production of leading OPEC+ countries will have increased by 2.6 million b/d compared to March, fully offsetting the voluntary cut of 2.2 million b/d agreed upon in 2023.

The cost of a new well in the US requires a Brent price of around $69 per barrel, so production there has not grown since late 2024 and is expected to remain at this level until 2026. This could potentially limit the impact of the increased production by OPEC+ countries on the global market.

A meeting of the eight OPEC+ participating countries to discuss the production level for November is scheduled for October 5. Igor Yushkov adds that as the automotive season ends and demand decreases, the production increase slows down, and the alliance may take a break in November-December.

In conclusion, OPEC+ countries are increasing their oil production in an effort to regain market share. This decision was made considering the stable global economic outlook and favorable market conditions. However, the continued increase in production will put pressure on prices and exacerbate the surplus. The impact of this increased production on the global market could potentially be limited by the cost of new wells in the US.