Three days ago, the eight members of OPEC+ agreed to increase oil output from October by 137,000 barrels per day, a much lower clip compared to the 555,000 bpd increase announced for August and September and 411,000 bpd in June and July. The Sunday announcement means that the group has started unwinding the second tranche of 1.65 million bpd in production cuts more than a year ahead of schedule, having fully unwound the first tranche of 2.5 million bpd since April. Oil markets have reacted positively to the smaller-than-expected production increases, with Brent crude for October delivery rallying from Friday’s one-month low of $65.50 per barrel to $67.60 in Wednesday’s session, while WTI crude moved from $61.62 per barrel to $63.73.

And now commodity experts at Standard Chartered have weighed in, saying the market could be discounting the fact that few, if any, extra barrels will hit the markets, with compensation cuts by some OPEC+ members enough to offset any extra oil coming from the group as a whole. StanChart has noted that the 137 kb/d increase suggests an equal split of the total 1.65 million barrels per day (mb/d) spread over 12 months, meaning no more large increases going forward. OPEC+ announced that the barrels “may be returned in part or in full subject to evolving market conditions and in a gradual manner”. StanChart analysts also “reaffirmed the importance of adopting a cautious approach and retaining full flexibility to pause or reverse the additional production adjustments, including the previously implemented voluntary adjustments of the 2.2 million barrels per day announced in November 2023.”

As expected, OPEC+ outlined the proposed compensation cuts for overproduced volumes by six members. Iraq has proposed an immediate 130 kb/d adjustment from August 2025 through January 2026, before slowing to 122 kb/d in June 2026. StanChart notes that Iraq will do most of the heavy lifting, with the country’s cuts alone nearly neutralizing the increase by the rest of the members. In contrast, Kazakhstan has backloaded its compensation schedule, proposing to cut by only 35k b/d in December 2025, before increasing to 100 kb/d in January 2026, 300 kb/d in February, 450 kb/d in March, 490 kb/d in April, 550 kb/d in May, and 650 kb/d in June 2026 for a total of 2.63 mb/d.

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However, the biggest risk to the bullish thesis remains potential non-compliance by Iraq and Kazakhstan, with StanChart noting that Kazakhstan’s plan to backload most of the cuts already goes contrary to previous plans to frontload them. Further, StanChart says that Iraq’s total contribution includes exports from the Kurdistan region (KRG), which is likely to return from suspension imminently, further complicating adherence to compensation cuts.

Overall, StanChart says the latest move by OPEC+ is bullish largely because the overproduction compensation schedule effectively negates production increases, if compliance is high. The commodity analysts also note that the forward curve still shows a brief period of backwardation lasting until around October 2026 before the curve moves into contango. Further, the cuts are by no means automatic, with OPEC+ promising to remain responsive to market conditions and could pause the unwinding program if market conditions worsen.

Meanwhile, Europe’s gas prices have continued to rebound, albeit at a slower pace, climbing above €33 per megawatt-hour to a two-week high with geopolitical tensions intensifying. Israel’s strike on Hamas leaders in Qatar has raised concerns, with Qatar a key supplier of LNG to Europe. A potential supply disruption to Qatar’s super-chilled gas is likely to be felt keenly ahead of the heating season. Further, Russia recently launched a barrage of drone attacks on Ukraine, with several breaching Poland’s airspace. The NATO member has labeled Russia’s offensive an “unprecedented violation,” prompting defensive action by NATO forces. The EU is now weighing new sanctions targeting Russian oil and gas firms as well as banks in a bid to pressure Moscow.

EU gas inventories have continued to climb, standing at 92.25 billion cubic metres (bcm) on 6 September, good for nearly 80% of technical maximum fill capacity. This represents an increase of 2.22 bcm w/w, 16.4 bcm lower Y/Y and 7.01 bcm below the five-year average. However, the injection rate jumped nearly 180% Y/Y, helping StanChart reaffirm its earlier prediction for inventories to reach 100.4 bcm on 2nd November.

By Alex Kimani for Oilprice.com

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