OPEC+ delegates are indicating a potential pause in oil production quota increases after September, due to rising worries about a market oversupply. This comes ahead of a key meeting on September 7 where eight major OPEC+ members, including Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman, will discuss future output strategy. By the end of September, these eight countries will have unwound about 2.2 million barrels per day (b/d) of production cuts implemented since the pandemic's recovery, with a total of 3.66 million b/d of cuts from 2022 and 2023 agreements still in place.
Analysts are forecasting a significant oversupply, with global liquids supply estimated at 108.3 million b/d by December, against a demand of 105.3 million b/d. This anticipated surplus is already impacting oil prices, with Dated Brent assessed at $67.32 per barrel on September 4, down from $71.39 on August 1. Further declines are predicted, with some analysts expecting Brent to fall below $60 per barrel by year-end and average $56 per barrel in 2027. Despite OPEC's recent optimism, citing a "steady global economic outlook," the group is facing a difficult decision as some members advocate for pausing output hikes.
The prospect of pausing quota increases contrasts with earlier decisions this year. In June, a similar deliberation resulted in an agreement to continue accelerating quota hikes in anticipation of high seasonal demand, a factor no longer pertinent as the fourth quarter approaches. However, the group has consistently raised quotas, with the August 2 meeting expected to approve a sixth consecutive output hike of around 188,000 b/d for September, matching previous monthly increases. This would effectively complete the rollback of a 1.65 million b/d voluntary production cut from 2023, adjusted for the UAE's departure from OPEC.
A complicating factor is that while quotas have been rising, actual production has struggled to keep pace in some regions. In July, OPEC+ countries produced 380,000 b/d below their collective target. Export disruptions, such as blockages in the Strait of Hormuz and drone attacks affecting infrastructure in Kazakhstan and Russia, have limited the ability of some members to increase output. Saudi Arabia, the UAE, and Kuwait hold the majority of the group's spare capacity and have led recent production growth. Saudi Arabia may also push to unwind remaining voluntary cuts, understanding that some OPEC+ nations lack the capacity to add incremental barrels.
Oil prices have been influenced by broader geopolitical events, including an interim peace agreement between the U.S. and Iran allowing unimpeded transit through the Strait of Hormuz, which was previously a major bottleneck for oil exports. Brent crude fell to under $72 per barrel after this agreement, close to pre-conflict levels, a significant drop from nearly $120 per barrel in March. While the increased quotas signal OPEC+'s intent to restore lost supply, the actual realization depends on geopolitical stability and the resolution of export bottlenecks, with full rebound of Gulf oil production not expected until at least Q1 2027 by some estimates.
