Oil advanced a fourth day after OPEC+ said it planned to pause output increases in the first quarter of 2026, following another modest hike for next month.

Vienna

OPEC+ announced it will pause oil output hikes for the first quarter of next year, following a previously expected increase of 137,000 barrels per day. The decision was influenced by concerns over an oversupplied market, uncertainty about Russian production due to sanctions, and signs of slowing demand from China as its inventory buildup tapers off.

Despite steady increases in output throughout the year, the market has absorbed the additional supply without a significant drop in prices, partly due to earlier strong Chinese buying. However, with U.S. production remaining near record levels and Chinese demand growth moderating, OPEC+ plans to reassess market conditions after December before making further output decisions.

Oil rises after OPEC+ says it will pause output hikes

So, OPEC Plus meeting, they brought back this 137,000 barrels a day to the market as expected, but perhaps the hawkish surprise is the fact that they decided to hold off in the first three months of next year. What is the rationale for that decision? What did they provide as rationale? Well, I mean, I think, you know, you look at what can be provided as rationale, but you also look at the context that it's all given in. And, you know, OPEC Plus is always saying that they're looking at the market and they're trying to digest the demand of their customers. But I think if you take a step back from that, you can sort of read the tea leaves that this is also partly to do maybe with Russia. You know, Russia was sanctioned, sorry, two of Russia's largest oil producers were sanctioned, Rosneft and Lukoil, by the Trump administration. And that is raising a lot of doubts about what Russia is able to produce, what they can bring to the market. And if they're unable to increase output, they have before previously pushed for smaller or no hikes at all. So likely, again, at this meeting, Russia's voice was to some degree likely heard. So that's the Russia argument, right, because they can't drastically increase and they're a big part of the OPEC Plus alliance. The other aspect as well is we are getting into an oversupplied market. Now, OPEC Plus has been famously increasing output since since earlier this year, month after month. And that's actually been absorbed by the market relatively well. Yes, Brent is at $65, but we haven't seen a collapse into 50 or $40 range in having it sustained at that level. Part of that is due to Chinese buying. They were buying quite a bit to refill their inventories. Now, those purchases might start to slow as the year goes on and as we go into 2026. So that demand isn't really there anymore. So you could see this tapering as, hey, they're going to see how the market digests this last bit that they're adding through December. And then after that, see where the market stands, because there is a view widely that there is an oversupply coming. At the same time, you also have U.S. output, which has been quite strong. U.S. production has remained near record levels, despite Brent and rather WTI being at the low $60 range. Yeah. And it's interesting, you know, last week, the Aramco CEO, Amin Nasser, was speaking at FII, and he said that he's still seeing strong signals come through from Asia. You referenced the fact that China had been building their strategic stockpiles. What are you watching out for in the coming months, Stephen, to determine whether that demand has started to falter? Yeah, I mean, clearly, you have to look at the run rates at the refineries, what the teapots are purchasing, and what their quotas are. You also have to look at industrial output from China to see how the Chinese economy as a whole is kind of going, because when you look at the strong Chinese demand, yes, they were filling their strategic reserves, but that isn't because of, you know, the enormous demand coming from China's sector. You know, it's not because there's a huge amount of gasoline being guzzled or diesel being produced for trucking. The EV sales in China have been very strong. And so on a long-term basis, Chinese demand for gasoline products will not continue to grow as it has in the past. Likewise, for heavy trucks, they've been shifting to some degree to LNG, liquefied natural gas, as well as electrification in that sector as well. So I think you need to watch just the downstream demand from China. You need to look at industrial demand overall. But that growth hasn't been where traders were expecting maybe a year or two ago when China was coming back from the post-COVID era. Continuously, China's industrial growth and economic growth has sort of under – was not living up to the hype that a lot of the traders had been expecting, and it hasn't really pushed up oil demand significantly. Now that can change, but, you know, when you're looking at the market, it's not so much a demand situation, it's also the supply. And as I signaled, you know, the U.S. supply has remained strong. OPEC Plus continues adding barrels to the market, and there are others as well that are adding.

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