Oil prices jumped by about 1.5% on Monday after OPEC+ announced a smaller-than-expected production increase for next month, easing fears of a major supply boost. However, analysts believe that any short-term price rally will likely be constrained by weak global demand.
By 3:15am GMT, Brent crude futures were up 91 cents, or 1.4%, at $65.44 per barrel, while US West Texas Intermediate (WTI) crude gained 89 cents, or 1.5%, to reach $61.77.
“The price jump has primarily been boosted by OPEC+’s decision for a lower-than-expected production hike next month as the group intended to buffer the recent slump in oil markets,” said independent analyst Tina Teng.
On Sunday, the Organization of the Petroleum Exporting Countries plus Russia and its allies confirmed that output would increase by 137,000 barrels per day (bpd) in November, matching October’s limited hike.
The alliance remains cautious amid persistent worries over a potential supply glut.
Ahead of the meeting, reports suggested that Russia pushed for a smaller hike of 137,000 bpd to keep prices stable, while Saudi Arabia preferred a more aggressive increase to quickly reclaim market share.
“OPEC+’s decision to increase production by another 137,000 bpd in November could be manageable in light of rising supply disruptions due to tightening sanctions by the US and Europe against Russia and Iran,” ANZ analysts said in a note on Monday.
The analysts also pointed to Ukraine’s continued drone strikes on Russian energy sites, including the Kirishi refinery- one of Russia’s largest with an annual capacity of over 20 million tonnes.
Meanwhile, the Group of Seven (G7) finance ministers vowed to tighten measures against entities helping Russia skirt sanctions, as part of broader efforts to curb Moscow’s oil revenue amid its war in Ukraine last week.
Despite the latest OPEC+ move, market watchers expect muted price action in the coming months.
“With the absence of any fresh bullish catalysts and growing ambiguity on the demand outlook, oil prices are likely to stay capped despite OPEC+’s smaller-than-feared output hike,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
She added, “The reality is that the market is gradually shifting toward a phase of oversupply, with seasonal demand expected to taper off into winter and macro data offering little upside impulse.”
Analysts also note that refinery maintenance work scheduled could further dampen demand this month globally.
“As the shoulder season progresses… a ramp-up in refinery maintenance should create a significant surplus, spurring a selloff in oil,” BMI analysts said in a client note.
