Key Points
- OPEC+ struggles with balancing oil prices and market share.
- Saudi Arabia’s Vision 2030 drives need for higher oil income.
- Non-OPEC+ supply growth, especially from the U.S., challenges OPEC’s plan.
This week, OPEC+ will meet to decide how and when to start reducing its current output curbs. Once more, the alliance must balance conflicting demands, which puts it in a challenging position.
OPEC+ weighs tough decisions on easing oil production cuts
The goal of OPEC and its allies is to maintain relatively high oil prices, even though they have not openly recognised this. In order to prevent budget deficits, many members—including Saudi Arabia—need prices to remain over $80 per barrel. Most people like prices over $90 per barrel.
But the expansion of non-OPEC+ supply, especially from the US, Guyana, and Brazil, is also being fuelled by rising oil prices. For a long time, OPEC has been torn between the necessity of making money and the possibility of losing market share to competitors.
U.S. oil growth complicates OPEC’s decision on cuts
OPEC confronts a problem at its December 5 meeting, which was postponed from its intended December 1 meeting, as Brent crude prices have stabilised in recent weeks at slightly over $70 per barrel.
Drillers in the United States could suffer from lower prices, but so would Russia and OPEC, both of which depend significantly on oil earnings.
According to Oil price, there is now greater uncertainty than ever around OPEC’s exit strategy from the production curbs. OPEC would have to go over its own budget and endure a protracted period of lower prices until demand starts to surpass supply again in order to bankrupt U.S. drillers, as the group has attempted in the past.
To finance Crown Prince Mohammed bin Salman’s Vision 2030 initiative, which seeks to diversify the Kingdom’s economy away from reliance on oil, Saudi Arabia, the head of OPEC+ and the cartel, need a sizable amount of oil revenue. output cuts.
In a post last week, Iran’s OPEC governor, Afshin Javan, claimed that OPEC’s price-supporting tactics have unintentionally boosted U.S. oil production. Although the post was removed soon after it was published, experts took notice of it. Javan pointed out that OPEC’s ability to relax its output cuts is constrained by this circumstance.
Another obstacle to OPEC’s ambitions, according to Javan, is China’s “bleak economic prospects.” OPEC+ declared earlier this year that, if market circumstances hold, it will begin progressively raising supplies by the end of 2023.
According to reports, Saudi Arabia is urging a three- to six-month postponement, while other delegates are calling for additional cuts. But none of the alliance’s other manufacturers have endorsed further reduction.
