{"id":5754,"date":"2025-09-09T19:51:06","date_gmt":"2025-09-09T19:51:06","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/5754\/"},"modified":"2025-09-09T19:51:06","modified_gmt":"2025-09-09T19:51:06","slug":"opec-latest-hike-casts-shadow-over-glut-narrative","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/5754\/","title":{"rendered":"OPEC+ Latest Hike Casts Shadow over Glut Narrative"},"content":{"rendered":"

Last Sunday, OPEC+ agreed<\/a> to add 137,000 bpd to its collective oil output. This was the seventh monthly output hike decision by the group, and it came amid warnings of a looming supply overhang. Yet oil prices rose on the news. While counterintuitive at first glance, the market\u2019s reaction actually suggested that rumors about a glut may be premature.<\/p>\n

One reason why the output hike failed to pressure prices was its size. After several months of adding over 400,000 barrels daily, OPEC+ this time went for a much smaller increase, of the same size as its first one in April this year.<\/p>\n

Another reason why the market\u2019s reaction was, in fact, only to be expected, was the fact that while production has been rising within OPEC+ for the last six months, some of that rise has been on paper only. Some producer countries have taken longer to ramp up to their new quotas, while others, namely Iraq and Kazakhstan, have been pressured by the OPEC leadership into compensating for their overproduction previously.<\/p>\n

\u201cDue to overproduction across this subgroup of producers, the actual incremental increase to follow from today\u2019s announcement will be substantially smaller than the headline number, with Saudi Arabia having the vast share of the remaining spare capacity, alongside materially smaller volumes in the UAE and Kuwait,\u201d RBC Capital Markets\u2019 Helima Croft said, as quoted<\/a> by Barron\u2019s in comments on OPEC+\u2019s latest decision.<\/p>\n

Related: Israeli Surprise Strike on Qatar Sends Oil Prices Higher<\/a><\/p>\n

Spare capacity is a central factor in the OPEC+ story and a favorite of oil price forecasters when they talk about a glut. The argument appears to be that because OPEC+ has all this spare capacity\u2014concentrated in a handful of members\u2014there is virtually no risk of an oil shortage, but there is a risk of oversupply because the group is now dipping into that spare capacity.<\/p>\n

\u201cWhat they\u2019re doing is removing paper cuts from the market. There is a massive amount of barrels that are on paper being withheld from supply, but in reality, most countries don\u2019t have the ability to bring those barrels back,\u201d TD Securities\u2019 senior commodity strategist Daniel Ghali told<\/a> Bloomberg. Oil traders are clearly aware of that, hence the market\u2019s reaction.<\/p>\n

\u201cThey\u2019re perhaps emboldened by the fact that oil prices have not fallen significantly since they\u2019ve resumed bringing barrels back to the market, but this is actually quite a negative signal from an energy market perspective,\u201d Ghali continued. \u201cThe silver lining, I think, is that the headline number that they\u2019re giving 137,000 barrels a day is significantly overstating the amount of barrels that are actually going to hit the market.\u201d<\/p>\n

Once again, the analyst highlights the dominant mood among the analytical community about a looming glut. That mood is fueled by estimates of weaker demand coupled with growing production, with the U.S. and other non-OPEC producers routinely cited as drivers of the downward pressure on prices. But U.S. production growth is slowing down because of price weakness. Guyana\u2019s is rising, but while a growing producer, Guyana is no Saudi Arabia. On top of it all, the European Union is planning more sanctions against Russia\u2019s oil industry. While it would be safe to say the previous ones have had a rather limited impact on Russian exports, the news of more energy sanctions always cheers up oil bulls.<\/p>\n

This is why oil prices did not slump after OPEC+ said it would extend its production ramp-up for yet another month. Everyone\u2019s talking about a glut, but they are not convinced it is coming because the physical market data does not support such a conviction. Also, OPEC+\u2019s declaration of 137,000 bpd more in production next month may remain of this size on paper only. There is also another reason why it pays to take these developments with a little bit of caution. OPEC+ could always reverse the hikes\u2014and it has said as much.<\/p>\n

By Irina Slav for Oilprice.com<\/p>\n

More Top Reads From Oilprice.com<\/p>\n

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