OPEC+ is meeting this coming weekend to discuss the next steps in its production control plan. Early reports suggest the group will stick to a pause in the rollback of its cuts. Yet commentators say that this will not be enough—a glut is coming and OPEC+ will need something more than pausing cuts.
First, the numbers. OPEC and its partners from OPEC+ started cutting oil production in 2023 after prices fell from three-digit highs in 2022. At the peak of the cuts, the group was withholding over 5 million barrels daily in supply. In fact, it was withholding close to 6 million barrels daily: the initial OPEC+ cuts of 2 million barrels daily, the first round of voluntary cuts by eight members of the group, amounting to 1.65 million barrels daily, and the second round of voluntary cuts by the same eight members, at 2.2 million barrels daily.
Of these, the original cuts remain in place and will remain there until the end of next year. Of the two rounds of voluntary cuts, 2.2 million barrels daily have been unwound, as well as 411,000 barrels daily from the first round of those cuts. This leaves some 3.24 million barrels daily in withheld supply, per Reuters calculations. Apparently, the amount is not enough to calm markets in their anticipation of a glut.
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Not that forecasters are helping. The perception of a glut is already so pervasive that there seems to be few who question it. Not only this, but the glut keeps getting revised higher and higher. Per the International Energy Agency’s latest, the supply overhang in crude oil could top the record-smashing 4 million barrels daily next year—even though the IEA has revised its demand estimates higher. Per JP Morgan, the glut will not only be severe, but it would linger, pressuring prices a lot lower than they already are.
While forecasters and analysts talk about the glut, OPEC is preparing to discuss its maximum sustainable production capacity. That capacity needs to be measured so the group can set its baseline for 2027, Reuters reported, citing two OPEC delegates. Over the past two years, some members have found it hard to produce in line with their quotas—which were established on baselines—while others have taken the opportunity to produce more than their quotas.
Iraq and Russia, for instance, have found it difficult to stick to their target production levels. The United Arab Emirates, on the other hand, even managed to get a quota increase from the producer group, to reflect—and legitimize—its higher production capacity. Saudi Arabia, according to Reuters, has also benefited from greater production capacity.
Yet updating production baselines is just one of the things OPEC can do next year to get a clearer picture of how much each member of the group is actually producing. Another thing that the cartel can, and should, do is clean up its production data, at least according to Bloomberg’s Javier Blas.
In a column this week, Blas said OPEC+ intentionally misleads the market with inaccurate data—both self-reported and secondary-source, after the secondary sources were asked to change their production calculation methodology, per Blas. Also, OPEC+ needs to start reporting condensate and natural gas liquids production alongside crude, the Bloomberg energy columnist argued, noting that last year, in addition to the 40.9 million bpd in pure crude, as it were, OPEC+ was also producing 8.5 million bpd of condensates and NGLs.
While OPEC+ discusses how to move forward, oil prices are on course to end 2025 with a solid decline, largely on the back of those oversupply expectations based on global oil inventories, the prospect of an end to the war in Ukraine, and, of course, the oil demand decline narrative that focuses on China and its demand growth moderation.
OPEC itself sees the oil market balanced in 2026. In fact, it berated the media for its misrepresentation of its latest Monthly Oil Market Report, because some coverage of the report claimed the producer group expected oversupply—which it does not. The group said in the November report that oil production from non-OPEC countries would grow faster than expected, adding 1.3 million barrels daily to supply in 2026. Demand, OPEC said, would meanwhile grow at a rate of 1.6 million barrels daily, reaching a total of 106.2 million barrels daily.
What nobody seems to expect is a slowdown in production in response to the lower oil price environment. This slowdown is at this point inevitable and already happening in the U.S. shale patch. If prices do tank on the hypothetical peace deal between Russia and Ukraine, the slowdown will accelerate, giving OPEC a much-needed break. What the group would do with that break remains to be seen, but restoring trust in its data would be a good start.
By Irina Slav for Oilprice.com
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