Oil prices post weekly drop with Opec+ set for further output increase

Group to meet on Sunday, having agreed to raise production by 547,000 barrels per day for September

Oil pipelines at the Gazprom Slavyanskaya compressor station, in Russia. The Ukraine war has affected oil prices. Bloomberg

Oil prices recorded a weekly decline over concerns of a supply glut stemming from higher US crude inventories and another output increase from Opec+.

Brent, the benchmark for two thirds of the world's oil, settled 2.2 per cent lower at $65.50 a barrel. West Texas Intermediate, the gauge that tracks US crude, declined 2.5 per cent to $61.87.

Oil prices were up at the start of the week amid fears that continued hostilities between Russia and Ukraine could disrupt supplies and as certain shipping companies linked to Iran faced US sanctions.

But the underlying theme this week was investor anticipation of the Opec+ meeting on Sunday, when the group is once again expected to increase output to regain market share.

The group agreed to increase oil production by 547,000 barrels per day this month, following a 548,000 bpd rise in August and 411,000 bpd in May, June and July. Last week, US government data showed America's crude inventories grew by 2.4 million barrels, bucking analyst expectations of a decline.

"Part of the reason [for oil's decline] is weaker US macro data, as well as some market chatter of a supply increase by Opec+," Giovanni Staunovo, a strategist at Swiss bank UBS, told The National.

"We will see on Sunday what the eight countries decide, but the supply increase has lagged the quota increases so far, something to stay so in case the group opts to further unwind their cuts."

Lower oil prices have also hit US companies hard. On Wednesday, ConocoPhillips said it was planning to reduce its workforce by 20 to 25 per cent, becoming the latest major oil producer to announce large layoffs.

US shale companies have said they need oil prices to be at $65 per barrel on average to drill profitably, according to a quarterly survey from the Federal Reserve Bank of Dallas, published in March. US President Donald Trump's administration has repeatedly said it wants oil to be at $50 per barrel.

Prospects of another supply increase at Sunday’s meeting are also encouraging bears to sell into tentative bullish momentum, said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

"Geopolitical risks, however, remain elevated, with mounting fears of further Russian attacks on Ukraine. That keeps downside potential in oil limited, likely into the $60 to $62 range," she added.

Last month, the broader Opec group increased its global oil demand forecast for 2026 slightly, expecting a tighter market amid economic momentum that is expected to continue next year.

Demand for crude is expected to grow by 100,000 bpd to 1.4 million bpd, with a slower expansion in supplies from Opec's rivals.

Meanwhile, the International Energy Agency has raised its forecast for oil supply growth this year after a decision by Opec+ to increase production and lowered its demand forecast due to lacklustre demand across the major economies.

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The IEA expects world oil supply to be 2.5 million bpd this year before slowing to 1.9 million bpd in 2026. World oil demand will rise by 680,000 bpd this year, down from the 700,000 bpd previously forecast, the Paris-based agency said.

Zurich-based Julius Baer, meanwhile, expects the oil market to head towards a supply surplus later in 2025, with both the western summer driving season and the Middle Eastern summer power burn ending.