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OPEC+ agrees to increase oil production from October in order to gain market share

OPEC+ agreed to increase oil production in October, as Saudi Arabia tries to regain its market share. However, the pace will be slower than previous months because of an expected weakening of demand worldwide.

OPEC+ increased production in April, after years of cutting to support the oil markets. But the decision on Sunday to boost output further came as a shock amid a possible looming oil surplus during the winter months in the Northern Hemisphere.

In a Sunday online meeting, eight members of OPEC+ decided to increase production by 137,000 barrels a day from October, according to OPEC+. This is a much smaller increase than the monthly increases that were about 555,000 bpd between September and August, and 411,000 bpd between July and June.

Eight members of OPEC+ have begun unwinding a second tranche, which amounts to about 1,65 million bpd. This is more than a calendar year ahead of schedule. The group has already unwound its first tranche of 2,5 million bpd, which is equivalent to 2.4 percent of the global demand.

The barrels are small but they send a powerful message, said Jorge Leon, an analyst at Rystad who is a former OPEC representative. The increase in barrels is not about volume but more about signalling – OPEC+ wants to gain market share, even if that means softer prices.

Leon says that OPEC+ (made up of the Organization of the Petroleum Exporting Countries, Russia, and other allies) found it easy when the demand grew in the summer. But the real test comes in the fourth quarter, with the expected slowing of demand.

OPEC+ stated that it had the option to increase, pause, or reverse increases at future meetings. The next meeting between the eight countries is scheduled for October 5.

NEW CAPACITY

Saudi Arabia's efforts to punish overproducing members like Kazakhstan and the United Arab Emirates for building new capacity have also contributed to the increase in OPEC output this year.

In an effort to fulfill his promise made during the election to lower domestic gasoline prices, Donald Trump pressured the group earlier this year to increase production.

As a result of the increased production, oil prices have fallen by around 15% this year. This has pushed oil company profits to their lowest level since the pandemic.

The oil price has not fallen, but is still trading around $65 per barrel. This is due to the sanctions imposed by the West on Russia and Iran. This has encouraged OPEC+ producers to increase their output.

OPEC+ has not met its pledged increases because the majority of members are operating at near-capacity.

Analysts and data show that only Saudi Arabia and United Arab Emirates can add more barrels to the market.

OPEC+ already had two levels of cuts in place before the Sunday agreement - the 1,65 million bpd reduction by the eight member countries, and a second 2 million bpd reduction by the entire group until 2026. (Additional reporting from Olesya Astakhova and Maha el Dhan; editing by Nick Zieminski, David Holmes and David Holmes).

(source: Reuters)