OPEC+ again delays resumption of supplies due to falling oil prices

OPEC+ agreed to delay its December output increase by one month, the second delay to its plans to restore supplies as prices continue to slide amid a fragile economic outlook.

The group, led by Saudi Arabia and Russia, had intended to begin a series of monthly production increases, adding 180,000 barrels a day from December, but they will now limit supplies during that month, according to a statement posted on OPEC’s website on Sunday.

They have already delayed the resumption of production from October as falling demand in China and increased supplies from America put pressure on prices. Over the past four months, Brent crude futures have fallen 17% to trade around $73 a barrel, too low for Saudi Arabia and many other OPEC+ members to cover government spending.

“Market conditions won,” said Harry Chilingirian, head of oil research at Onyx Commodities Ltd. “OPEC+ has shown that it cannot ignore current macroeconomic realities centered on China and Europe, which point to weaker oil demand growth.”

A further delay may do little to support the market as many traders had expected. The International Energy Agency in Paris estimates that global markets will still face a glut next year even if the OPEC+ alliance refrains from increasing supplies. Citigroup Inc. and JPMorgan Chase & Co. Prices are predicted to drop to $60 in 2025.

The OPEC+ decision is “moderately positive,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. Instead, the market will focus on Iran’s response to Israeli attacks and the US election results, he said.

Crude oil markets have largely shrugged off a year of conflict in the Middle East, including Israel’s recent retaliatory strike on Iran, as traders grow increasingly confident that oil supplies from the region will remain unaffected.

That poses a financial threat to Riyadh, which needs prices closer to $100 a barrel to cover Crown Prince Mohammed bin Salman’s ambitious economic plans, according to the International Monetary Fund. The kingdom’s partner in the oil market, Russian President Vladimir Putin, also needs funds for the war against Ukraine.

“For me, the impact is more about sentiment than numbers,” said Amrita Sen, research director at consultancy Energy Aspects Ltd. “The market incorrectly views OPEC+ as seeking to flood the market to regain market share,” but instead their “primary goal remains to keep oil supplies under control.”

In June, the Organization of the Petroleum Exporting Countries and its partners outlined a roadmap to gradually restore, in monthly tranches, the 2.2 million barrels per day of output that had been shut down for the past two years.

However, deteriorating fundamentals hampered their plans: demand in China fell for four months, while supplies rose in the United States, Brazil, Canada and Guyana. In August, U.S. oil production jumped to a new monthly record of 13.4 million barrels per day.

“Given all the geopolitical tensions in the Middle East and, perhaps more importantly, the upcoming US presidential election, it makes sense for OPEC+ to delay the rollback of voluntary cuts for another month,” said Jorge Leon, OPEC+ senior vice president. consultant to Rystad Energy AS.

OPEC+ is struggling to persuade some members – notably Russia, Iraq and Kazakhstan – to implement their share of agreed supply cuts. The trio promised better compliance and more restrictions to compensate for overproduction, but overall pumped beyond their quotas.

The 23-nation alliance is set to meet on December 1 to review the 2025 policy.