In a measured response to escalating concerns about an oil surplus, Opec+ has decided to pause its plans for a production increase set for next year. Eight member nations of the coalition collectively announced they would proceed with a modest addition of 137,000 barrels per day (bpd) of crude in December, yet hold off on any further increases through January, February, and March. This decision is primarily attributed to seasonal trends, as demand typically dips following the holiday season, when many oil refineries go into maintenance mode.
The eight Opec+ countries, prominently featuring Saudi Arabia and Russia, have already raised their production quotas this year by a total of approximately 2.91 million bpd, which correlates to around 2.7% of global oil demand. However, in recent months, the pace of these increases has notably slowed. The adjustment for December is seen as a continuation of this trend, following slight upward movements in production during both October and November, prompted by forecasts indicating a potential oil surplus on the horizon.
The growing consensus among industry leaders is that oversupply could pose a serious threat to the market next year. Wael Sawan, the Chief Executive of Shell, highlighted this concern, acknowledging a “credible scenario of oversupply” looming on the horizon.
Interestingly, the modest December increase suggests that Opec+ does not expect a significant curtailment of Russian oil volumes from the market, despite new sanctions imposed by the United States targeting Russia’s two largest oil companies, Rosneft and Lukoil. These sanctions, which also threaten financial institutions engaging with these companies, were enacted at the end of October. Following the announcement, oil prices, which had dipped to a five-month low around $60 a barrel, rebounded to above $65.
Research firm Energy Aspects estimates that these sanctions could impact between 1.4 million and 2.6 million bpd of Russian crude, with India being the most affected in terms of imports. However, skepticism remains regarding the sanctions’ effectiveness in hindering Russian oil flows. Moscow has established extensive mechanisms to circumvent export control attempts since 2022.
Jorge León, leading geopolitical analysis at Rystad Energy, cautions that it is premature to gauge the sanctions’ actual impact. He remarked, “Crude export numbers look steady, but that is because that crude was produced a month ago or so. In reality, exports will start showing some signals in three to four weeks.”
León reflects on Opec+’s strategy, suggesting that while the group may appear to be yielding, it is a “calculated move.” He notes that the introduction of new uncertainty from sanctions on Russian producers has added complexity to supply forecasts, prompting Opec+ to exercise caution in its production decisions to avoid potential repercussions later on.
