The oil market will likely see a bigger-than-expected surplus this year, OPEC+ said in a report on Aug. 31, as rising energy costs and tighter monetary policy exert downward pressure on oil demand.

The report comes days ahead of an OPEC+ policy meeting on Sept. 5 and over a week after OPEC leader Saudi Arabia said the group may cut oil output.

The Joint Technical Committee (JTC), which meets on Aug. 31, advises OPEC and allies led by Russia, collectively known as the OPEC+ group of oil-producing nations, on market fundamentals.

OPEC+ is ready to cut output amid volatility in the oil futures market, driven by thin liquidity and a disconnect with physical markets, Saudi Energy Minister Prince Abdulaziz bin Salman said last week.

Five sources told Reuters that discussions are yet to begin on production policy beyond September and whether the producer group would cut output.

Oil prices have been extremely volatile in recent weeks. While Prince Abdulaziz' comments helped propel prices to one-month high above $105 a barrel on Aug. 29, Brent crude on Aug. 31 traded $10 a barrel below those levels, on expectations for lower demand.

At its last meeting, OPEC+ agreed to raise production targets by 100,000 bbl/d for September, having unwound record cuts of about 10 MMbbl/d that it agreed in 2020 to help counter the impact of the pandemic.

The JTC report said oil demand – which it sees growing 3.1 MMbbl/d this year – faces major uncertainties particularly from rising inflation and tightening monetary policy which are eating into consumers' budgets.

"Rising energy prices pose another risk going forward," the report said. "The latter may lead to a more significant reduction in consumption than currently anticipated, especially towards the end of the year."

The JTC sees the oil market surplus this year reaching 900,000 bbl/d, up 100,000 bbl/d from its previous forecast, a report by the committee seen by Reuters showed.

Under its base case scenario, the JTC sees the oil market in a surplus of 3.1 MMbbl/d in September, falling to 0.6 MMbbl/d in October before rising to 1.4 MMbbl/d in November.

OPEC+ also expects a surplus of 900,000 bbl/d next year under its base scenario, the JTC's report showed.