Saudi Arabia’s frustration with overproducing nations like Kazakhstan has prompted a significant shift in the OPEC+ oil group’s strategy. Recently, OPEC+ decided to increase oil production, a move that may remain unchanged even if oil prices fall further.
This decision marks a notable deviation from Saudi Arabia’s commitment to production control aimed at stabilizing the market, especially given that its budget relies on oil prices around $90 per barrel. For months, Saudi Arabia has pressured Kazakhstan and Iraq to adhere to agreed-upon production cuts.
However, Kazakhstan has continued to report record output levels, aided by increases from American companies like Chevron and Exxon Mobil, while Iraq has also lagged in making cuts. In a bid to address these compliance issues, OPEC+ initially announced modest monthly production increases.
But as member adherence worsened, Saudi Arabia’s call for a drastic production boost of 411,000 barrels per day in May surprised many, as this figure significantly exceeded expectations. The consequences of this decision were swiftly felt, with oil prices plummeting by 8% to below $65 per barrel, the lowest point since the COVID-19 pandemic.
Interestingly, OPEC+ members may refrain from adjusting this output hike even if prices drop below $60 per barrel. According to sources involved in discussions, Saudi Energy Minister Prince Abdulaziz bin Salman emphasized the need for adherence to production targets or risk further increases in output.
While this decision may invoke memories of past market share battles, it is also driven by geopolitical considerations. The timing coincides with U.S. tariffs and President Trump’s ongoing call for lower oil prices, creating a complex interplay between international relations, oil production, and market dynamics.
OPEC ministers are expected to convene for further discussions soon, as the organization increasingly mirrors the unpredictability of political landscapes.