Oil Extends Gains After Opec+ Pauses Q1 Output Hikes

On Nov 03, early Asian trade, oil prices climbed for a fourth straight session. This was the result, as the market gulped-down a pivotal decision that OPEC+ made over the weekend. On one hand, Brent crude futures rose to $65.24 a barrel. On the other hand, the U.S. West Texas Intermediate crude was at $61.43 a barrel. The OPEC+ (Organisation of the Petroleum Exporting Countries and their allies) agreement on Sunday to a modest, expected output hike of 137,000 bpd (Barrels Per Day) for Dec 2025 had sparked this rally.

The OPEC+ made a surprising announcement that shook the market and made news. The announcement was that they will "pause the production increments in Jan, Feb, and Mar 2026."

This decision, citing the seasonal demand softness, directly confronted and eased rising fears of a supply glut that had sent prices to a five-month low on Oct 20. It can also be a direct result of the market weighing these:

• Record-high crude output of 13.8 mn bpd in the US in Aug
• New geopolitical fires, including a Ukrainian drone attack on Russia's Tuapse oil port.

With the cartel now actively managing the floor, the critical question is: has OPEC+ done enough to prop up prices, or are they just delaying an inevitable surplus?

Why Did OPEC+ Hit The Pause Button?

The OPEC+ decision was a direct and cautious response to a barrage of bearish data that had sent oil prices tumbling for three consecutive months. There is primary fear of a massive supply glut looming in the first quarter of 2026 haunting the market. Analysts have estimated that this potential surplus is wildly broad. It ranges from a manageable 0.19 mn bpd to a market-drowning 3 mn bpd.

Furthermore, there are two powerful forces fuelling this oversupply fear:

1. The record-breaking US production - The fact that US crude output has hit an all-time high shows that non-OPEC supply has remained a powerful and growing force that the cartel cannot ignore.

2. OPEC+ itself flagged "anticipated demand softness" due to seasonality in Q1 - The global economy is potentially hampered by US tariffs and other concerns. This is to acknowledge that lesser oil might be needed after the winter peak.

So, the OPEC+ is essentially blinking first by pausing its hikes. The group has signalled that it would rather protect the price floor than fight for market share in a potentially weakening market. However, investors need to understand if this caution is just about fundamentals, or is geopolitical risk complicating the calculation?

Is Geopolitical Risk The Real Wild Card?

The OPEC+ pause is indeed a clear fundamental signal. But the market is also struggling to price in a growing and highly unpredictable "geopolitical risk premium." This risk is centered squarely on Russia who is the OPEC+ alliance major member. Also, the supply picture is being threatened on two distinct fronts.

1. Recent US Sanctions - The recent U.S. sanctions imposed on Russian energy giants Rosneft and Lukoil, injected considerable uncertainty into the market.
2. Physical attacks on infrastructure - A Ukrainian drone attack struck the Tuapse port on Sunday. It was one of Russia’s most important Black Sea oil terminals. This escalation is moving the risk from a financial ledger to the physical world that might threaten the actual flow of barrels.

Even the US is pumping at record levels. Therefore, the market cannot ignore the possibility of a sudden, unexpected supply disruption from one of the world's largest producers.

The “Wait And See” Market Signal

For now, the bulls are in control. The OPEC+ decision to pause Q1 hikes has successfully put a floor under the market. It has also eased the worst fears of a glut and allowed the geopolitical risk premium to take over.

However, the underlying bearish factors have not gone away. The market is also keeping an eye on other global hotspots. Furthermore, President Donald Trump on Friday denied he was considering strikes inside Venezuela. This poured some cold water on another potential supply risk.

Investors are now in a "wait and see" mode. The market will be closely watching the sanctions and the actual physical flow of oil from Russia to see the real impact of the Tuapse attack. At the same time, all eyes can be on the US production figures and global demand data.

Source

InvestingDotCom
Reuters
The Economic Times