Author: Sajjad Sheikhi
The institution warns that there is a significant gap between OPEC quotas and the actual production of members. This level of production increase announced by OPEC is in fact the authorized production ceiling for members, but this amount is not necessarily actually produced. According to Morgan Stanley's estimate, the group's actual oil production only increased by 500,000 barrels during the March to October period, which is significantly less than the 2.6 million barrels per day officially announced by OPEC. Consequently, the actual oil supply will likely be much lower than market expectations, as many OPEC members are not adhering to the officially announced production levels; eight OPEC members are still approximately 1.2 million barrels per day short of their current supply quota.
Morgan Stanley forecasts that the supply surplus will balance out in the second half of 2027, and Brent crude oil prices will return to the mid $65 range.
Sanctions and Political Tensions
The largest Chinese oil refineries, including state owned giants and small private refineries, refrained from purchasing Russian oil in cooperation with the United States. This action has particularly impacted ESPO grade oil and caused prices to fall; it is estimated that approximately 400,000 barrels per day, equivalent to 45% of Russia's total oil imports to China, will be affected by these sanctions.
State owned companies such as Sinopec and PetroChina have canceled some Russian shipments, and small private refineries are also avoiding similar actions to prevent being subject to sanctions similar to those on Shandong Yulong Petrochemical. This company was recently placed on the sanctions list by the European Union and the United Kingdom. Import restrictions and quota reductions have also made it difficult for these small refineries to purchase Russian oil.
Despite these restrictions, Russia remains the largest foreign supplier of oil to China because its oil is offered at a significant discount due to sanctions from other countries. Therefore, sanctions have not yet caused price increases, and Brent crude oil has consistently decreased over the past two years. On the other hand, sanctions may also have a negative impact on oil prices due to the discounted oil supply offered by sanctioned countries.
OPEC Remains Steadfast in Its Positions
Experience has proven that instead of focusing on OPEC's statements, one should pay attention to its actions. Despite warnings to halt or slow down production increases, OPEC+ has continued its oil production increase plan. Crude oil prices in the mid $60 per barrel range are still not enough to prompt a policy change, and for Saudi Arabia to take the first steps toward altering its approach, the Brent price must fall further and stabilize at lower prices for a long duration. The oil market continues to face an oversupply, and most analysts agree that oil supply will outpace demand until the middle of next year.
Furthermore, US sanctions against major Russian producers like Rosneft and Lukoil have had a limited impact on the market, as Russia and China have found alternative export routes by utilizing discounts, intermediaries, and their own oil tanker fleet.
Conclusion
OPEC decided to halt the production increase program in the first quarter of 2026, but the production increase for December remained in place. This decision was made to create a balance between oversupply and maintaining market share. However, its impact on the market will be limited because the oil market faces an oversupply and sanctions have also had a limited effect on prices.