The oil market is expected to remain in a large surplus in the coming months as OPEC+ plans to increase production further during November and December.
Experts believe that further oil coming from the Organization of the Petroleum Exporting Countries and allies will create a large surplus.
Monday was a turbulent day for the global oil market, as ICE Brent experienced a notable decline of over 3%.
This significant drop was largely attributed to emerging reports indicating that OPEC+ is contemplating a substantial increase in oil supply.
Market balance
Specifically, the influential group of oil-producing nations is reportedly considering adding an additional 137,000 barrels per day (bpd) to the market starting in November.
This potential surge in supply has naturally put downward pressure on oil prices, as increased availability typically leads to lower costs, assuming demand remains constant.
The market is now eagerly awaiting official confirmation of this decision, which is expected to come on October 5, the date of the next crucial OPEC+ meeting.
Should OPEC+ proceed with this proposed supply increase, it could have far-reaching implications for the energy sector.
“Our balance sheet clearly suggests additional supply isn’t needed,” Warren Patterson, head of commodities strategy at ING Group, said.
We expect the market to move into a large surplus in the fourth quarter and remain in surplus through 2026.
Consumers might see some relief at the pump, while oil companies and nations heavily reliant on oil revenue could face renewed challenges.
The decision will undoubtedly be a key factor in shaping the short-to-medium term trajectory of international oil prices and the broader global economy.
Market share
OPEC has been increasing production every month since April. The group had agreed to a plan of unwinding voluntary production cuts of 2.2 million barrels per day in phased manner till September 2026.
However, the cartel had been raising production by hefty amounts, and the 2.2 million bpd of voluntary cuts have already been reversed.
“As a result, we expected oil prices to come under significant pressure over the course of next year,” Patterson said.
OPEC+ appears confident that the market can absorb increased supply, as evidenced by the front end of the curve remaining in backwardation, despite the common perception that their supply increases are aimed at regaining market share.
As we move into the surplus environment, though, timespreads should come under further pressure.
Geopolitical tensions cushion bearish sentiments
Meanwhile, on Saturday, crude oil began flowing again through a pipeline from Iraq’s semi-autonomous Kurdistan region to Turkey.
This marks the first time in two and a half years that oil has been transported via this route, following an interim agreement that resolved a previous stalemate, according to Iraq’s oil ministry.
In recent weeks, the market has maintained a cautious stance.
This caution stems from a need to balance two opposing forces: supply risks, primarily due to Ukraine’s drone attacks on Russian refineries, and worries about oversupply and subdued demand.
Additionally, the White House has unveiled a 20-point peace initiative aimed at resolving the conflict in Gaza.
Key elements of the plan include a ceasefire, an exchange of hostages for Palestinian prisoners, a gradual withdrawal of Israeli forces, and the disarmament of Hamas.
Rystad Energy, despite the welcome news, anticipates continued elevated geopolitical risk. Consequently, oil prices are expected to remain stable as markets prepare for the global reaction.
Volatility likely to remain high
“The peace plan is still far from becoming a reality,” Rystad Energy’s head of geopolitical analysis, Jorge Leon, said in an emailed commentary.
Hamas would need to formally accept it, and even if that hurdle is cleared, the most difficult step will be ensuring effective implementation.
The true measure of the plan’s longevity will likely depend on its ability to secure compliance from all parties and establish effective enforcement mechanisms.
“In the meantime, volatility in the region is unlikely to subside in the immediate term,” Leon said.
Oil markets continue to factor in a significant geopolitical risk premium, and price increases are likely as traders anticipate potential setbacks or an escalation of current tensions.
Market sentiment in the near future will continue to be defined by the ongoing interplay between cautious optimism and deeply rooted uncertainty, Leon said.
Arab countries appear to be supportive of the plan, and their backing will be essential for the process to materialize and succeed.
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