OPEC+ looks set to further hike oil output

Analysts predict a slight output hike when the group of eight oil-producing countries known as the “Voluntary Eight” (V8) holds its online meeting.

Since April, the V8 group — comprising Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman — has boosted production by around 2.7 million barrels per day (bpd) in total.

Emily Ashford, an energy analyst at Standard Chartered bank, expects a production hike of 137,000 bpd from December, which would mirror last month’s decision.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) have sped up output increases at a pace very few had anticipated at the beginning of the year, following a long period of producers seeking to combat price erosion by implementing production cuts to make oil scarcer.

But faced with growing competition, particularly from US shale oil producers, gaining a larger share of the oil market has become the group’s main priority.

The group’s change in strategy “is working to a certain degree”, said Ole Hvalbye, commodities analyst at SEB bank.

Supply by US shale producers “is not increasing anymore, it’s going sideways”, he told AFP, adding that there is “less investment in new US production”.

Price resilience

As in previous months, the V8 group is likely to cite “low oil inventories” worldwide to justify a further increase in production quotas.

According to the US Energy Information Administration (EIA), crude oil inventories in the United States have recently recorded a sharp drop, allowing the price of a barrel of Brent, the global benchmark for crude, to remain steady at around $65.

Amid a growth in supply, the announcement came as a surprise, with oil inventories expected “to start stockpiling”, said Hvalbye.

Since September, most of the volumes at sea have risen sharply — even exceeding the levels reached during the Covid pandemic — and they are on their “way to (the) harbour”, he noted.

Adding barrels to the market thus exposes the group to a drop in prices that cuts into its profits, analysts say.

But not reintroducing them “would cause panic” among investors, said Ashford, because it would imply that OPEC+ “doesn’t see a strong enough market to absorb barrels, which would be seen as bearish”.

However, she said that an increase in OPEC+ quotas of 137,000 barrels would result in lower actual production, limiting the impact on prices.

Uncertainty over sanctions

Looking forwards, some V8 members that have exceeded their output quotas in the past will need to compensate for their overproduction, and Russia in particular “is already at full capacity”, Ashford told AFP.

In late October, pressure on Russian oil supplies mounted after the United States hit the country’s two biggest oil producers — Rosneft and Lukoil — with sanctions.

Analysts say the real impact of the US measures remains unclear, since it will largely depend on how strictly Washington enforces secondary sanctions on foreign financial institutions involved in transactions with the two firms.

“The market is underestimating what it means when you have US sanctions against two large Russian companies, which are (at) the core of trading Russian oil,” said Patrick Pouyanne, CEO of French oil and gas giant TotalEnergies on Thursday, suggesting that a significant reduction in Russian supply would support prices.

But many analysts are cautious, arguing that Russia has been circumventing Western sanctions successfully. Furthermore, the United States may not take any action against purchases by China, the main importer of Russian oil, with which it has just signed an agreement to reduce trade tensions.