Saudi Arabia pushes for "increased production," can oil prices hold at $60?

Oil options trading activity has surged, with investors making large bets that Brent crude will fall below the key psychological level of $60 per barrel.

On Thursday, activity in the oil options market showed that the trading volume of $55 and $60 put options expiring in December surged, with the total open interest for both options ballooning to the equivalent of 120 million barrels of oil.

Among them, the trading volume of the $55 put options reached a new high since early April, when OPEC shocked the market by announcing a supply increase three times larger than originally planned.

Previously, Wall Street Insights mentioned that OPEC+ member countries would hold a video conference on Sunday to discuss how to handle the currently suspended supply of 1.66 million barrels per day. Saudi Arabia hopes to accelerate the next oil production increase.

As a result, the market's willingness to seek protection against downside risks has sharply increased, with the price of the $60 put options for December delivery soaring from $0.59 to $1.35 in just three days. The premium of put options relative to call options reached its highest point since early August.

According to Wall Street Insights, the disappointing U.S. non-farm payroll data for August and weak employment raised concerns about oil demand, combined with news that OPEC+ might increase production on Sunday, led to a 2% decline in oil prices on Friday, with WTI crude futures briefly falling below $62, while Brent crude dropped to around $66.

(WTI crude futures decline)

Saudi-led production increase to regain market share

Reports indicate that Saudi Arabia is pushing OPEC+ to increase production ahead of the planned restoration of supply next year. Insiders say that Saudi Arabia hopes to offset the impact of falling prices by increasing output and reclaiming market share previously ceded to competitors.

OPEC representatives stated that Saudi Arabia is eager to regain sales volumes lost to competitors such as U.S. shale oil producers.

Over the past five months, the alliance has accelerated the restoration of previously shut-in production capacity and now faces decisions on how to handle the remaining suspended supply of 1.66 million barrels per day.

Livia Gallarati, global head of crude oil at Energy Aspects Ltd., stated in a media interview:

The latest information we have from the group indicates that they are very seriously considering lifting the last batch of shut-in supplies as soon as possible, rather than later.

Increased risk of oversupply

Further increases in production will exacerbate the oversupply expected in the fourth quarter, as predicted by organizations such as the International Energy Agency, bringing more downward pressure on oil prices.

Analysts and traders expect a global crude oil surplus to form by the end of the year.

According to a previous article by Wall Street Insights, Goldman Sachs expects that oil supply growth driven by non-OPEC countries (excluding the U.S.) will lead to a surplus of 1.8 million barrels per day in the global market by 2026, ultimately pushing Brent crude prices down to $50 per barrel by the end of 2026 If oil prices fall below $60, it will be a favorable situation for U.S. President Trump, who has repeatedly attempted to lower oil prices through rhetoric.

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