OPEC+ "agrees in principle": Production increase in October

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OPEC+ has "in principle agreed" to increase production again in October. This marks a complete shift in the organization’s strategy from defending prices to pursuing market share. According to member state representatives, the alliance led by Saudi Arabia and Russia will approve an increase of approximately 137,000 barrels per day at a video conference on Sunday, beginning the next phase of unwinding production cuts.

Key member states stated that the October production increase will initiate the recovery of the previously reduced 1.66 million barrels per day, measures which were originally planned to remain in place until the end of 2026. This decision continues OPEC+'s recent major policy shift on supply—restoring 2.2 million barrels per day supply one full year earlier than planned in an effort to recapture market share.

Wallstreetcn previously analyzed that the crude oil market reacted strongly to production increase expectations, with investors heavily betting that Brent crude would fall below the key level of $60 per barrel. Open interest in $55 and $60 December put options surged, with the total open interest in both options expanding to the equivalent of 120 million barrels of crude oil.

For the global oil market, this move by OPEC+ has weakened the long-standing spare capacity safety net, which was originally available to provide cushioning during unexpected supply shocks.

Saudi Arabia Leads Strategy Shift to Production Increase

Saudi Arabia is pushing OPEC+ to implement the production increase plan ahead of schedule, aiming to recapture market share previously ceded to competitors. According to member state representatives, Saudi Arabia is eager to win back the sales lost to competitors such as U.S. shale oil producers.

Over the past five months, the alliance has accelerated the restoration of previously idle production capacity and now faces decisions on how to handle the remaining paused supply of 1.66 million barrels per day. Livia Gallarati, global head of crude oil at Energy Aspects Ltd., said the group is seriously considering quickly unwinding this final batch of withheld supply.

If OPEC+ maintains a monthly pace of about 137,000 barrels per day increase, it will fully reverse the 1.66 million barrels production cuts within a year. However, actual output may fall short of the announced figures, as some member states face pressure to compensate for earlier overproduction and must give up their share of the increase, while some countries lack spare production capacity.

Since the beginning of this year, crude oil prices have fallen by 12%, due to increased supply from OPEC+ countries and other regions, as well as turmoil in global trade markets dragging down demand. Nevertheless, the market as a whole demonstrated unexpected resilience toward the OPEC+ strategic shift, giving Saudi Arabia and its allies more confidence to release additional output.

Options Market Bets on Price Drop

On Thursday, activity in the crude oil options market showed trading volume for December $55 puts hitting its highest level since early April, when OPEC stunned the market with a supply increase three times larger than previously planned. Driven by OPEC+’s possible increase in production, the market’s demand for downside risk protection has surged rapidly.

Within three days, the price of December $60 puts soared from 59 cents to $1.35, and the premium of puts over calls reached its highest level since early August.

Oversupply Risk Intensifies

Some analysts believe that further production increases will intensify the fourth-quarter oversupply forecast by agencies such as the International Energy Agency, bringing more downward pressure on oil prices.

Analysts and traders expect a global crude oil surplus to emerge by year-end. Goldman Sachs expects that oil supply growth from non-OPEC countries (excluding the U.S.) will lead to a global market surplus of 1.8 million barrels per day by 2026.

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