Eight members of the OPEC+ alliance decided yesterday to put off increasing oil production as they face weaker-than-expected demand and competing production from non-allied countries — factors that could keep oil prices stagnant into next year.
The OPEC+ members decided at an online meeting to postpone production increases that had been scheduled to take effect on Jan. 1 next year. The plan had been to start gradually restoring 2.2 million barrels per day over the course of next year.
That process will now be pushed back to April 1 next year and production increases will gradually take place over 18 months until October 2026.
Photo: Reuters
OPEC+, which includes Saudi Arabia as the dominant member of the OPEC producers’ cartel, and Russia as the leading non-OPEC member in the 22-country alliance, has imposed several sets of cuts to agreed output to support prices.
Oil prices have been slack due to weaker-than-expected demand from China as well as increased production from countries like Brazil and Argentina that aren’t in OPEC+.
Among the beneficiaries of the current state of the oil market are US motorists, who have seen gasoline prices fall to their lowest in 2 1/2 years to near US$3 a gallon.
Oil analysts have been busy reducing their estimates for demand next year, meaning that OPEC+ could remain in a bind well into the coming year.
The Saudis need oil revenue to carry out Crown Prince Mohammed Bin Salman’s ambitious plans to diversify his country’s economy, including the development of Neom, a US$500 billion futuristic city in the desert. For Russia, oil export revenues are a key pillar of state finances and funding for the war against Ukraine. Holding back production risks losing market share. Yet increasing production and sales could lower prices in a global economy that analysts say is already well supplied with oil.
US oil has been stuck around US$70 per barrel and traded at US$68.92 on Thursday ahead of the meeting, down from US$80 in August. International benchmark Brent crude traded at US$72.66 per barrel, down from around US$80 in July.
OPEC has cut its forecast for next year’s demand growth to 1.54 million barrels per day, from 1.85 million barrels per day in July. That is at the high end of estimates compared to those from the International Energy Agency at 990,000 barrels per day, the US Energy Information Administration at 1.22 million and energy intelligence firm Rystad Energy at 1.1 million.
Analysts at Commerzbank AG foresee Brent prices averaging US$75 per barrel in the first quarter of next year and US$80 for the remaining three quarters.
In the US, Donald Trump’s return to the White House will likely lead to more fossil fuel production. Not only has the president-elect campaigned on more drilling, but his Treasury secretary nominee Scott Bessent has put together an economic plan with the goal of increasing domestic oil production by the equivalent of 3 million barrels a day. Bessent has indicated that the additional oil production would reduce inflationary pressures for US consumers, but the Trump team has not fully outlined why oil producers would ramp up supplies and lower prices to levels that could hurt their profits.
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