Clarifies volume of cut to be unwound
The Opec+ group's eight core producers could consider bringing more crude to market when they meet this weekend, according to delegate sources.
A meeting scheduled for Sunday, 7 September, could consider unwinding a 1.65mn b/d layer of output cuts starting in October. But ongoing compensation commitments, production limits for certain members, and the likely slow pace of any unwinding mean the physical market effect could be muted.
The group could weigh a 12-month phase-out of the cut, delegate sources told Argus, implying monthly increments of about 137,000 b/d. Should this go ahead they expect a cautious approach, maintaining the flexibility to increase, pause, reduce or even reverse policy on a month-to-month basis.
This could even lead to a reversal of recent output rises, depending on market conditions.
The 1.65mn b/d cut — agreed in April 2023 by Saudi Arabia, Iraq, Kuwait, Russia, the UAE, Algeria, Oman and Kazakhstan — is scheduled to stay in place until the end of 2026. Unwinding this more than a year ahead of schedule would align with measures taken by the same eight members which will this month complete unwinding a 2.2mn b/d cut that had been in place since late 2023.
That process was delayed several times until it began in April, but then moved fast.
Among the main factors shaping the decision to accelerate were weak compliance and delayed compensation, primarily from Kazakhstan, Iraq and Russia. Then there was the discrepancy between what the group decided and the actual supply that made it to market.
The group restored about 670,000 b/d between April and July, far short of the notional 1.37mn b/d expected for that period, according to Argus' estimates.
Opec+ is counting on a similar trend continuing. Russia and Iraq are capping output to compensate for past overproduction, which will continue to keep them below targets well into 2026. There are also doubts over some countries' ability to ramp up production. Kazakhstan has been consistently overproducing and is near its maximum capacity.
The unwinding of the cut "will amount to nothing more than 700,000-800,000 b/d at best", a delegate said. "If we bring it in a phased process, monthly increments will be around 60,000 to 70,000 b/d. The impact will be minimal," the delegate said.
Hence, the unwinding of the nominal 1.65mn b/d of output cuts could translate into a much lower actual volume of extra supply. As such, a gradual phase-in of these volumes could draw attention to Opec+ production shortcomings and the group's spare capacity.
