Over the weekend, OPEC+ took over as the primary driver of crude prices from geopolitics, sending prices higher in early Monday trading. Over the last couple of weeks, crude had been on the back foot amid concerns of a supply glut amid hopes of a peace deal between Ukraine and Russia. US President Donald Trump had proposed a controversial 28-point plan to end the war initiated by Russia’s invasion of Ukraine more than three years ago.
As time went on, it seems that many aspects of the original plan are up for negotiation. However, there remains the expectation that if fighting in Ukraine were to stop, Russian oil production would eventually return to the global market. This would add to a situation where the IEA is already predicting a supply glut next year. But, as progress on the peace plan has been slow, markets are turning to other events for price guidance.
OPEC+ Suspends Production Increases for Three Months
Over the weekend, OPEC+ met to decide on oil output quotas that take effect on January 1st. The cartel had been raising production at each meeting for months and was widely expected to make another increment. That’s based on expectations that OPEC’s largest producer, Saudi Arabia, is seeking to expand its market share by lowering global prices. So far, Brent is down 15% year to date.
However, OPEC+ decided to keep production quotas at the current level through the first quarter of 2026. This surprise to the market helped give crude a bump at the start of the week. Additionally, the cartel agreed on a new mechanism to control production among its members, which would take effect in 2027. The group still has around 3.2 million bbl/day of capacity that it could expand, which represents about 3% of global supply.
Record Production and Venezuela Threat
If the reason for raising production is to drive down prices and capture market share, the results have been dubious so far. In fact, the US reported record crude output during September. However, the market will face a data blackout as the US government was shut down in October and the first part of November, meaning that data wasn’t collected.
Meanwhile, other geopolitical factors are entering the mix. That includes increased tensions around Venezuela, which has the world’s largest crude reserves. The South American nation has been ramping up production this year and, in October, reported output of more than 1.1 million bbl/day. Meanwhile, the US has been increasing its military presence in the region, attacking boats that it claims are carrying drugs. Trump even insinuated that the US military could take action on land. It’s widely believed that the White House is trying to put pressure on Venezuelan President Nicolas Maduro to resign. Over the weekend, Trump declared Venezuelan airspace “closed” in the latest sign of increased tensions.
Where Does the Ukraine Peace Deal Stand
Last week, markets were hopeful that a deal to end the conflict in Ukraine was near after Trump announced his 28-point plan. The EU has rejected the proposal as offering too many concessions to Russia. Russia, in turn, has not formally responded. But a Kremlin spokesperson suggested that President Vladimir Putin might not agree to it. Special US envoys Steve Whicoff and Jared Kushner are set to meet with Putin later this week, in what could be a make-or-break opportunity to reach an agreement.
In the meantime, a high-level Ukrainian delegation met with its US counterparts in Florida. Both expressed commitment towards peace, but acknowledged that more work needs to be done on the framework deal proposed by the White House. The initial optimism about a deal might have been premature, and crude prices have started to rise pending further progress.
