OPEC+ affirms plans to hike October crude oil production by 400,000 b/d

Seeing hearty global oil demand ahead, OPEC and its allies agreed Sept. 1 to hike their collective crude production by 400,000 b/d in October, sticking to their plans to keep easing back their historic output cuts.

With crude prices above $70/b, economic growth firm and rival US production growth still relatively subdued, OPEC+ ministers saw no reason to change course, quickly wrapping up their virtual meeting in under an hour.

But they left no clues on how they will manage crude supply in November and beyond, as delegates said only October production levels were discussed, and the typical webcast of the ministers' opening speeches and the post-meeting press conference were canceled.

The next OPEC+ meeting has been scheduled for Oct. 4.

"Thanks to joint actions, [OPEC+] managed to remove the stock surplus that was accumulated during decline in demand," Russian Deputy Prime Minister Alexander Novak told state media just prior to the meeting. "Now it is important to maintain this balance and synchronize production and demand."

Dated Brent was assessed at $71.36/b following the meeting, after the benchmark had slumped to a four-month low of $66.17/b on Aug. 19.

The 23-country OPEC+ group, which collectively controls about half of the world's oil production capacity, has been gradually tapering the record 9.7 million b/d output cuts it implemented in spring 2022 as demand recovers from the crash caused by the coronavirus pandemic.

The cuts are now roughly half gone, and the alliance is scheduled to continue shrinking them by 400,000 b/d each month, though ministers have said they will meet every month to review those plans and remain responsive to the market.

During their discussions, ministers reviewed an internal forecast that indicated global oil demand would far exceed supply through the rest of the year, by 1.0 million b/d in September, 1.1 million b/d in October, 800,000 b/d in November and 400,000 b/d in December, according to a copy seen by S&P Global Platts.

Delegates said the figures gave members confidence that the market could easily absorb the additional barrels planned for October.

"While the effects of the COVID-19 pandemic continue to cast some uncertainty, market fundamentals have strengthened and OECD stocks continue to fall as the recovery accelerates," the alliance said in a communique.

The decision was unlikely to satisfy the US, which in August had called on the bloc to be more aggressive in hiking production to cool off the gasoline market and now is monitoring fuel prices closely in the wake of Hurricane Ida.

Future increases

But 2022 fundamentals are much less rosy, with many forecasters predicting the tight market of late 2021 will give way to supply overhangs by January.

The OPEC+ analysis revised up its 2022 demand growth forecast to 4.2 million b/d, up from the previous 3.3 million b/d, but still had the market in surplus for the year by 1.6 million b/d, which could cause the alliance to consider pausing its output hikes at future meetings..

Based on recent trends, not all members of the OPEC+ alliance may be able to fully achieve their allocated monthly rises going forward. Collective compliance among members with quotas was 109% in July, according to the OPEC+ communique, indicating that some countries left market share on the table.

Already, Angola, Malaysia and a few other members have had trouble over the past year in hitting their full allocations, while others have seen volatile production, due to field declines, lack of investment and internal disruptions.

US sanctions-hit Iran and Venezuela, along with war-torn Libya are exempt from quotas under the deal.

S&P Global Platts Analytics estimates that as of August, OPEC+ spare production stood at 5.0 million b/d, and with the expected monthly quota increases, it will shrink to 3.8 million b/d by December, the vast majority of which will be held by Saudi Arabia, Russia, the UAE and Kuwait.

Iran's potential return to the market will also be closely monitored.

In his first OPEC+ meeting, new Iranian oil minister Javad Owji said that as soon as US sanctions are lifted, his country was prepared "to increase its oil production to the highest possible level."

But talks with the US and other signatories of the Iran nuclear deal have stalled since June and a restart does not appear imminent.

Prior to the reimposition of US sanctions in 2018, Iran produced as much as 3.9 million b/d of crude, roughly 1.4 million b/d higher than current levels.