Why oil prices worldwide are about to go down
What's the story
The Organization of the Petroleum Exporting Countries and its allies (OPEC+) are likely to approve another oil production increase of at least 137,000 barrels per day (bpd) in their upcoming meeting. The decision comes as rising oil prices prompt the group to further regain market share. The meeting is scheduled for October 5.
Policy shift
OPEC+ reverses earlier output cuts
OPEC+ has reversed its earlier strategy of output cuts from April and has already increased quotas by over 2.5 million bpd, or about 2.4% of global demand. This move is aimed at boosting market share after coming under pressure from US President Donald Trump to lower oil prices. The group produces nearly half of the world's oil and includes OPEC countries as well as Russia and other allies.
Market dynamics
Oil prices hit highest since August 1
Since OPEC+ started increasing production in April, oil prices have mostly traded in a narrow range of $60-$70 per barrel. However, on Friday, prices hit their highest since August 1, crossing $70 per barrel. The spike was fueled by Ukrainian drone attacks on Russia's energy infrastructure, that disrupted refining and shipments from one of the world's biggest oil exporters.
Cut reversal
OPEC+ output reductions at their peak
At their peak, OPEC+'s total output reductions amounted to 5.85 million bpd, comprising voluntary cuts of 2.2 million bpd and additional reductions by eight members and the whole group. The eight producers plan to fully unwind one element of those cuts - 2.2 million bpd - by September's end. For October, they started removing a second layer of 1.65 million bpd with an increase of 137,000 bpd.
Production increase
UAE's request for production boost approved by OPEC+
OPEC+ has also approved the United Arab Emirates's request to boost production by 300,000 bpd between April and September. The proposed November increase, which will be discussed on October 5, is likely to be at least 137,000 bpd, equal to the October hike. However, analysts have noted that OPEC+ hikes have fallen short of pledged amounts as most members are already pumping at capacity.