Barrelling Ahead: Conditional Consensus
Most oil market outlooks project a weak 2025 thanks in large part to OPEC+’s scheduled production hike—but what if the producer group kicks the can again?
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OPEC+ will soon announce (very likely by November 5) what it plans to do with its scheduled December production increase—and there are already murmurs of another delay.
Both the IEA and EIA agree that OPEC+’s planned 2.2 MMbpd production increase would, if executed as currently scheduled, push the market into notable oversupply over the course of 2025.
While a full 2.2 MMbpd is likely too much for the market to absorb without considerable downward pressure on prices, less bearish outlooks indicate that we’ll need some additional OPEC+ production to balance the market.
OPEC+ would do well to consider a middle-ground approach—say, a shallower easing pace of 1.1 MMbpd—that would show OPEC+’s membership that these cuts aren’t forever while at the same time signaling a more realistic and credible strategy to the market.
We are, likely, days away from a decision as to whether OPEC+ will proceed with the year-long process of easing 2.2 MMbpd in production cuts meant to begin in December. It has been widely accepted, for a while now, that oil market balances in 2025 would be weak—a fait accompli, even. Demand growth forecasts have been slashed amidst the flatlining of Chinese consumption and, despite recently weakening crude pricing, OPEC+ has continued to signal that it will begin increasing production in December. OPEC+ delayed the initially planned October production liftoff at the last minute—at least by physical oil market standards—on September 5th. Saudi official selling prices (OSPs) are finalized on the 5th of each month for the following month, so December OSPs—and, thus, at least a rough idea of how much crude will be shipped and at what prices—will likely be decided by November 5th.
Indeed, the scheduled increase in OPEC+ supply remains, by far, the largest single factor influencing 2025 balances and will likely mean the difference between supply surplus and deficits in the oil market—and this is a discretionary policy choice based on the whims of a handful of policymakers. Yesterday, we heard the first murmurs that the producer group may, once again, be considering delaying the output hike. Quoting “four sources close to the matter,” Reuters reported that OPEC+ delegates are concerned that the market is too weak to absorb the planned output hike and that it could be delayed for “a month at least”. While a full scheduled return of OPEC+ barrels seems all but sure to push the market into notable oversupply, the median of major agency estimates still sees a need for some additional barrels from the producer group to avoid overly tight conditions next year.
So, why is OPEC+ still on the fence, how do the latest agency forecasts for 2025 balances look with and without OPEC+’s additional barrels next year, and what exactly should the producer group do?
Let’s dig in.