Oil glut ‘exaggerated’ as Opec+ prepares for another output increase, analysts say

The supergroup of producers is preparing to boost production for November at its Sunday meeting, for the eighth consecutive month

Rosneft's Russian-flagged crude oil tanker Vladimir Monomakh crosses the Bosphorus in Istanbul, Turkey. US President Donald Trump is piling pressure on countries to stop buying Russian oil. Reuters

Oversupply of oil in the market is “exaggerated”, and demand continues to remain strong, as Opec+ prepares for another production increase next month, analysts have said.

The market is not “seeing the glut and it’s not evident yet in the physical market … it’s exaggerated”, Vandana Hari, chief executive of Singapore-based Vanda Insights, told The National.

She said demand for crude remains strong as a result of a combination of factors including limited diesel exports from Russia amid Ukraine attacks on its refineries and China stockpiling crude.

Winter season boosts on demand for heating oil are also expected.

“If China continues to buy for stockpiling, and I think they will … I see it as demand growth and a bullish signal,” Mr Hari said, adding that the coming winter season is expected to boost demand for crude in the Northern Hemisphere as demand for heating oil is projected to rise.

The comments come as Opec+, the supergroup of oil producers led by Saudi Arabia and Russia, prepares to boost production for November at their meeting on Sunday, after increasing output for seven consecutive months since April this year.

This week, Goldman Sachs predicted Opec+ to raise oil production by 140,000 barrels per day for November amid lower crude stocks in the US, higher demand in Asia and downside risks to Russia’s crude production as Ukraine attacks Russia’s refineries.

Last month, Opec+, citing steady global economic outlook and current healthy market fundamentals, approved adding about 137,000 bpd to the market for October as it began to unwind 1.65 million bpd of voluntary cuts announced in April 2023.

This came after the group eliminated about 2.2 million barrels of voluntary cuts announced in November 2023 the month before, with monthly cuts starting in April.

“I think the wise thing for Opec+ to do would be to bring this oil back in a phased manner, not to give the market another shock or try the market with another 500,000 [bpd],” Ms Hari said. She added that Opec+ is not aiming to prop prices up to a certain level and is now “willing to live with softer prices in the $60s [a barrel],” as they focus on diversifying their economies away from hydrocarbons.

US President Donald Trump’s pressure on countries to stop buying Russian crude in an effort to curtail Moscow’s revenue and spending on the Ukraine war is also impacting oil prices, but “has become increasingly a short-term phenomenon”, Ms Hari said.

“So, every time there is news of like, Trump issuing an ultimatum, or he giving [Russian President Vladimir] Putin a deadline, you see crude going up by $3 … it also comes off equally quickly,” she added.

Oil prices were trading higher on Thursday morning following losses in the previous three sessions, with potential tighter sanctions on Russian crude lending some support to crude even as oversupply concerns persist in the market.

Opec confident it can maintain oil market stability

02:59

Brent, the benchmark for two thirds of the world's oil, was up 0.24 per cent at $65.54 a barrel at 10.20am UAE time, while West Texas Intermediate – the gauge that tracks US crude – was trading 0.26 per cent higher at $61.94 a barrel.

Last week, oil prices posted their biggest weekly gains since June as Mr Trump increased pressure on buyers of Russian oil and Ukraine carried out new attacks on Moscow's energy infrastructure. Brent surged 6.19 per cent and WTI leapt 5.32 per cent from previous week’s close.

Oil prices edged higher on Thursday “after a sharp three-day slide of nearly 7 per cent, as markets awaited the weekend Opec+ meeting, where producers are expected to agree on another output hike for November despite concerns over a looming glut”, MUFG bank research analyst Soojin Kim said in a note on Thursday.

“The G7 is preparing tougher sanctions on Russia, targeting energy, finance, and defence sectors, while also weighing restrictions on countries and entities helping Russia bypass existing curbs,” Ms Kim added.

Meanwhile, Ms Hari expects oil to trade around “mid to high 60s” on an average this year as higher demand continued to support markets.