Everyone is operating under a specified limit or target.
In September 2022, the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) announced a plan to increase oil production by 547,000 barrels per day (bpd) for eight alliance countries [1][3][5]. This move was aimed at reversing earlier voluntary production cuts ahead of schedule, which were initially set to phase out by 2026 [1].
The increased production raises concerns about a possible supply glut in the second half of 2022. The International Energy Agency (IEA) projects a surplus equivalent to about 1.5% of global crude consumption by the fourth quarter [2]. OPEC+ is reportedly considering pausing production increases after September due to worries over slowing global demand and accumulating inventories [2].
The oversupply risk in the fall is seen as significant enough that OPEC+ is cautious about further hikes in the fourth quarter but remains open to adjusting supplies depending on factors like geopolitical tensions affecting Russian oil exports [1].
Senior BCS analyst Kirill Bakhtin believes there is no significant risk of overproduction in September due to high demand following the summer season. However, the surplus could be the largest since 2018, excluding the pandemic period in 2020, analysts say [6].
Igor Yushkov, an analyst, notes that additional oil will only enter physical circulation by late September or October, coinciding with a seasonal demand decline. U.S. trade policy, including tariffs, and a continued decrease in Chinese motor fuel consumption are the main factors influencing global oil demand, according to the Center for Price Indices (CPI) [4].
The CPI estimates a fourth-quarter global market surplus of up to 1 million bpd. Yushkov also points out that Russia's excess production compensation program ends in September, meaning both increased and previously restrained volumes will hit the market [4].
A meeting of the eight OPEC+ participating countries to discuss October's production level is scheduled for September 7 [7]. Alexander Dyukov, CEO of Gazprom Neft, predicts that an increase in OPEC+ production in the coming months is unlikely to lead to market oversupply but will not support higher prices [6].
In conclusion, the production increases are projected to put downward pressure on oil prices due to heightened supply, but OPEC+ adjustments and market conditions will be critical in determining the precise market impact.
Sources:
[1] Reuters (2022). OPEC+ to boost oil output by 547,000 bpd from September, earlier than planned. [Online]. Available: https://www.reuters.com/business/energy/opec-boost-oil-output-547000-bpd-september-earlier-planned-2022-08-02/
[2] Bloomberg (2022). OPEC+ Faces Oil Glut Risk as Demand Slows, Inventories Build. [Online]. Available: https://www.bloomberg.com/news/articles/2022-08-02/opec-faces-oil-glut-risk-as-demand-slows-inventories-build
[3] Al Jazeera (2022). OPEC+ agrees to boost oil output by 547,000 bpd from September. [Online]. Available: https://www.aljazeera.com/economy/2022/8/2/opec-agrees-to-boost-oil-output-by-547000-bpd-from-september
[4] TASS (2022). OPEC+ production increase to lead to oil surplus in Q4 - analyst. [Online]. Available: https://tass.com/economy/1494694
[5] S&P Global Platts (2022). OPEC+ to increase output by 547,000 bpd from September. [Online]. Available: https://www.spglobal.com/platts/en/market-insights/latest-news/oil/080222-opec-to-increase-output-by-547000-bpd-from-september
[6] RIA Novosti (2022). OPEC+ will not lead to market oversupply but will not support higher prices - Gazprom Neft CEO. [Online]. Available: https://www.ria.ru/20220802/neft-1845698902.html
[7] TASS (2022). OPEC+ to discuss October output level at September meeting - source. [Online]. Available: https://tass.com/economy/1494688
Despite the planned increase in oil production by OPEC+, concerns about a potential supply glut in the second half of 2022 persist, as the International Energy Agency projects a surplus equivalent to about 1.5% of global crude consumption by the fourth quarter. This could be the largest surplus since 2018, excluding the pandemic period in 2020, analysts say. The CPI estimates a fourth-quarter global market surplus of up to 1 million barrels per day (bpd), and additional oil will only enter physical circulation by late September or October, coinciding with a seasonal demand decline. These factors suggest that the increased production may lead to downward pressure on oil prices, although OPEC+ adjustments and market conditions will be critical in determining the precise market impact.
