The OPEC+ oil alliance has decided to increase production starting in October, confirming previous reports. This decision continues a six-month campaign to reclaim market share despite a slowdown in global demand.
This move confirms a shift in strategy for Saudi Arabia, which is moving from a focus on high prices to a strategy aimed at restoring revenue by fully utilizing its production capacity.
Key Production Details
Eight countries, including Saudi Arabia, Iraq, and the United Arab Emirates, announced they will increase their combined daily production by 137,000 barrels starting in October. However, analysts believe that only Riyadh (Saudi Arabia) and Abu Dhabi (UAE) have the capacity to actually increase their output, as most other member countries are already producing near their maximum capacity.
Since April, OPEC+ members have already added about 2.5 million barrels per day to the market, unwinding the first package of production cuts. With this new decision, the alliance begins to reverse the second set of cuts that went into effect in April 2023.
Impact on Oil Prices
Despite the increased production, crude oil prices have not collapsed. Brent crude closed on Friday at $65.50 per barrel, down 2.2% for the day but significantly higher than the low of $58 in April.
Prices are being supported by ongoing sanctions against Russia and Iran, as well as increased summer demand in the Northern Hemisphere. However, traders are already anticipating a surplus toward the end of the year, which will be exacerbated by the new OPEC+ production increases.
Internal Tensions and Future Strategy
A third package of cuts, totaling 2 million barrels per day, remains active until the end of 2026. These cuts, announced in October 2022, initially boosted prices to an average of $101/barrel in 2022 and $82/barrel in 2023.
Over time, their effectiveness decreased, leading to internal disagreements and quota violations by several countries. Saudi Arabia, which bore the brunt of the cuts with a 2-million-barrel reduction, grew tired of the costs and this year pushed for a return to full production. Sources suggest that Riyadh’s strategy also has a political dimension: it wants to redefine production limits based on each member’s actual capacity.
While Saudi Arabia and the UAE continue to invest in their oil sectors to increase future capacity, underinvestment in other countries means they are already at their production limits. In a potential renegotiation of quotas, this could lead to lower production ceilings for members who cannot increase their output.