OPEC+ continues path towards unwinding cuts

Market calls

• OPEC+ surprised oil markets on Sunday when eight of its members agreed to move forward with the unwinding of voluntary production cuts in October.
• The decision defied expectations that the group would pause and instead marked a show of confidence that the market can absorb more supply.

The eight members of the alliance announced that they would restore 137 Kbd next month, beginning the rollback of a tranche of 1.65 million b/d in voluntary cuts originally scheduled to last until 2026. Prior to the meeting, the wider expectation was that the group would stop after restoring 2.2 Mbd by September, mainly over concerns about a potential supply glut in late 2025 and early 2026. Instead, the group pressed ahead, and oil prices remained steady, with Brent trading at around the $66 a barrel mark on Monday.

“In view of a steady global economic outlook and current healthy market fundamentals, as reflected in low inventories, the right participating countries decided to implement a production adjustment of 137Kb/d,” the OPEC secretariat said in its communique.

A signal, not a supply shock

On the OPEC+ 8’s decision, the policy move isn’t just about barrels, it’s a signal to the market. The token adjustment of 137K b/d on paper, of which perhaps only 70Kbd will materialize, was designed to show unity and coordination. More importantly, it was intended to indicate that demand is not as weak as some predict, and a glut that would lead to a “super contango” scenario is just very unlikely, according to delegates from the group.

Overall, the latest announcement by the group can be described as a “waiting move”: a carefully calculated gesture that maintains momentum without committing to a major policy shift. By doing so, OPEC+ reinforced confidence while keeping its options open to pivot to the option of a cut later if deemed necessary. We understand that one of the main factors that could be triggered to shift policy back into cuts is market structure flipping from backwardation to contango.

However, so far, low stock levels outside of China is giving the group an added layer of confidence in their decision to unwind their cuts. And in terms of coming to a consensus decision on policy, delegates attending the last meeting said it only lasted just ten minutes with no objections. Typically, member states align positions ahead of time, allowing swift decisions and a united front.

Real barrels vs. headline numbers

Despite the headline, actual additional supply will be limited. Only Saudi Arabia and the UAE hold meaningful spare capacity, meaning the 1.65Mbd unwind will likely translate into 600-700Kbd at most. And part of the reason the market didn’t get affected by a bearish pull is because there’s a realization that the increment announced for October is small and may only amount to around 70Kbd (of the 137Kbd), as some member states face difficulties in reaching their new set quotas and others continue with their compensation cuts.

Earlier phases of the voluntary cuts involving the unwinding of the 2.2Mbd tranche may result in actual barrels amounting to less than 1.5Mbd when fully completed in September. On Monday the OPEC secretariat published the updated compensation cuts plan for the member states, which in turn will be aided by the higher production ceiling offered.

Strategic calculations

The decision reflects OPEC+’s longer-term thinking. The group has absorbed past increases thanks to seasonal summer demand in Gulf states, Chinese stockpiling, and ongoing compensation cuts by some states.

Far from an aggressive market-share play, this adjustment helps reset baselines and reveal how much production capacity is present versus what’s on paper. At the moment the group is working on a plan to assess and update baselines for all 23 member states by 2027; the process of unwinding the cut may aid in better determining those levels.

Moreover, completing the unwinding would give OPEC+ a clean slate, allowing any future cuts to be applied from a higher reference point. For now, however, no guidance was given for future policy, leaving markets awaiting the next meeting on October 5.

Winners and losers

Both Saudi Arabia and Russia reduced output by around 500,000 b/d under the tranche now being unwound. But we see that Russia, being constrained by sanctions and limited investment, has little spare capacity to further boost output. We believe that Russia’s production is likely to have very limited upside in the near future, especially if tighter sanctions take effect.

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