OPEC+ Expected to Increase Production in November: Market Share Motives

Oil traders anticipate that OPEC+ will agree to a further increase in production at its upcoming November meeting, in an effort to claw back global market share. A Bloomberg survey of traders and analysts reveals a strong inclination towards a production increase, mirroring the modest 137,000 barrels per day (bpd) hike implemented in October. A virtual meeting involving eight core OPEC+ nations is scheduled for October 5th to discuss this pivotal issue.

Despite widespread warnings within the oil industry about an "imminent oil glut," OPEC+ has already begun a phased reactivation of its idled capacity, totaling 1.66 million bpd. Notably, Saudi Arabia, previously disregarded bearish forecasts and rapidly restored its output by 2.2 million bpd, a decision that has since been validated as oil prices have only weakened slightly. This is partly attributed to China's massive crude oil purchases to replenish its strategic reserves, as well as the incomplete implementation of announced production plans by OPEC+.

Impact of Prices and Global Politics

On Friday, Brent crude prices hovered around $69 per barrel, a cumulative decline of nearly 7% since the start of the year. This slight dip offers some respite to consumers who have endured years of inflation, and it also benefits U.S. President Donald Trump, who is seeking to lower interest rates and pressure Russia to end the Russia-Ukraine conflict.

Out of 21 survey respondents, only three predicted that the eight core OPEC+ nations would not increase production. The majority, however, anticipated an increase of approximately 137,000 bpd.

The Surprise Factor and Saudi Strategy

Saudi Energy Minister Prince Abdulaziz bin Salman is known for his surprise moves, such as accelerating the reactivation of 2.2 million bpd of production through a "massive production increase." Despite the challenges posed by Western sanctions and Ukrainian attacks on the Russian energy industry, Russia, as a co-leader of OPEC+, remains largely cooperative on production increase issues.

Motives for Regaining Market Share

OPEC+ representatives have offered varied explanations for the "rapid reactivation of idled capacity since 2023," a shift from the organization's long-standing efforts to "support oil prices." Sources familiar with Saudi thinking suggest that the kingdom seeks to offset revenue losses stemming from "lower oil prices" through "increased production," and reclaim global market share lost to competitors such as U.S. shale producers in recent years.

“The organization has adopted a market share strategy,” said Kim Fustier, Senior Global Oil & Gas Analyst at HSBC. “We think OPEC+ won’t back down unless there is a significant drop in oil prices.”

Saudi Arabia's allowance of OPEC+ to expand production also serves as an attempt to demonstrate to oil traders that the remaining spare capacity among other OPEC+ members is far less than widely anticipated, thereby shattering any complacency about the market's supply outlook. An example of this dynamic is the agreement reached this week between Iraq and Turkey to resume oil exports from Iraq's semi-autonomous Kurdistan region. However, oil prices were largely unmoved by the news, as traders suspect that most of the previously idle capacity has already been diverted for Iraqi domestic consumption or exported to neighboring countries.