Members of the Organization of Petroleum Exporting Countries and their allies decided over the weekend to boost oil output by 137,000 barrels a day for the third straight month. They’re increasing supply despite the fact that oil prices have been falling this year.
Why? The story starts a few years ago, said Jorge León of Rystad Energy, when OPEC began a different push — one to limit pumping.
“OPEC has, since October 2022, been cutting production to support prices, until December 2024,” he said.
Those cuts did prop up oil prices. But they had a side-effect for OPEC: “Gradually but steadily giving up market share,” said León.
Elevated prices prompted non-OPEC countries to muscle in. The U.S., Brazil, Argentina, Guyana, Norway and Canada all raised output.
This year, OPEC finally decided, “they don’t like giving away market share to other players,” said Mark Finley, an energy and global oil fellow at Rice University.
So OPEC is now reversing course and trying to undercut those other players, Finley said. That’s why the cartel is boosting production amid an oil glut.
“The group has been on a program for much of this year of trying to gradually unwind large production cuts that have been in place for several years,” he said.
But the market can only soak up so much oil. China had been buying and stockpiling crude on the cheap this year, but that’s now slowing, said Matt Smith, lead oil analyst at Kpler.
“Now that China isn’t stock building, they’ve been absent from the market. And so we’re seeing prices moving lower,” he said.
Meanwhile, global sales of electric vehicles keep growing. And the geopolitical risk built into the price of oil has declined, since the Gaza ceasefire. All of which leads Jorge León of Rystad Energy to say: “Next year, there is gonna be a market that is gonna be heavily oversuppled.”
OPEC said starting in January, it’ll finally stop pumping more oil.
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