OPEC+ managed to both meet market expectations and deliver a surprise by agreeing to a small rise in crude oil output for December, but then pausing for the first quarter of next year.
The eight members of the exporter group undertaking voluntary production cuts decided at their monthly meeting on Sunday to lift their output target by 137,000 barrels per day (bpd) for December.
This matched market expectations and continued the recent pattern of modest increases seen in October and November.
The eight OPEC+ members, which include heavyweights Saudi Arabia and Russia, have now raised output targets by about 2.9 million bpd, about 2.7% of global supply, since April.
However, the group said they would pause any increase in targets for the first three months of 2026, despite sticking to their oft-expressed view of a "steady global economic outlook and current healthy market fundamentals".
The stated reason for suspending any further production hikes in the first quarter of next year was about as upbeat as bearish news can be presented.
"Beyond December, due to seasonality, the eight countries also decided to pause the production increments in January, February, and March 2026," OPEC+ said in a statement.
It is correct that the first quarter tends to be softer from a demand perspective, but it's also likely that OPEC+ is putting a positive spin on what is an uncertain outlook for both global oil demand and supply.
There is a high degree of divergence between the forecasts by the Organization of the Petroleum Exporting Countries and the International Energy Agency (IEA) for next year.
OPEC's monthly report in October forecast 2026 oil demand growth at 1.38 million bpd and that demand and supply growth will be largely balanced.
The IEA expects 2026 demand to rise by 700,000 bpd but a surge in supply will lead to a surplus of as much as 4 million bpd, the agency said in its October monthly report.
Most oil market analysts sit somewhere between OPEC and the IEA, with a Reuters poll in September showing an expected surplus of 1.6 million bpd in 2026.
UNCERTAINTIES
OPEC+'s decision could be viewed as a sensible precaution to guard against any oversupply, and the inevitable slump in prices that would accompany a glut of oil.
The decision is also a bit of insurance against current market uncertainties on both the supply and demand fronts.
The recent U.S. sanctions against Russian crude producers and ongoing pressure on the major buyers of Russian oil, India and China, by U.S. President Donald Trump has led to questions as to whether the market will lose Russian barrels.
The general expectation is that even if there is a pullback in purchases by India and China, it will only be for the short term and before long Russian supplies will once again be at full strength.
The bullish supply narrative largely rests on Russia being able to export as much as it can, as well as ongoing output gains among non-OPEC producers.
The bullish demand narrative rests largely with Asia, the top-importing region that takes about two-thirds of all global seaborne crude.
Asia's demand is expected to have rebounded in October with LSEG Oil Research estimating imports of 28.59 million bpd, up 1.49 million bpd from September's 27.1 million bpd.
But much of the gain is concentrated in China and India, the world's two biggest net oil importers.
China's October imports are estimated at 12.21 million bpd, up from 11.5 million bpd in September, while India's are pegged at 5.05 million bpd, rising from September's 4.79 million bpd.
What China and India have in common is that they tend to be price-sensitive buyers, importing more when prices are deemed to be reasonable and cutting back when prices rise.
September's weak imports came after oil prices spiked in June amid the brief conflict between Israel and Iran, with cargoes arriving that month largely having been arranged during the period of high prices.
The jump in October arrivals coincides with the drop in prices after the June spike as the risk premium eased and OPEC+ continued to lift output targets.
The dilemma for OPEC+ is that for their bullish demand forecasts to be correct, prices are going to have to be low enough to tempt Asian buyers to lift imports, especially China, which is still building commercial and strategic inventories.
But if OPEC+ is subtly shifting to once again limiting gains in output in order to stabilise prices, it runs the risk of buyers easing back on imports.
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The views expressed here are those of the author, a columnist for Reuters.
