Opec+ Surprises Oil Market with Repeated Decisions to Boost Output

As the Saudi-led oil cartel surprises the market with three consecutive increases in production, analysts argue that Saudi Arabia's decisions signal an acceptance that it cannot push prices higher. The repeated decisions come amidst growing frustrations with other Opec+ members and ahead of a key visit to the region by US President Donald Trump. While Opec+ has framed the decision to unwind long-standing production cuts as a response to "healthy market fundamentals", private conversations reveal a different story.

The Saudi energy minister, Abdulaziz bin Salman, has complained that other Opec+ members were consistently pumping above their quotas, reducing the impact of the cuts. The kingdom has reduced output by one-fifth in the past three years to about 9mn b/d, the lowest since 2011, outside of the coronavirus pandemic. Analysts point to evidence that the cuts were becoming less effective, and the opportunity to curry favour with a US president who has repeatedly called for lower oil prices, as the drivers of the about-face.

Key Takeaways:

• Opec+ has surprised the oil market three times in as many months by raising production faster than expected.
• The decision to unwind long-standing production cuts was framed as a response to "healthy market fundamentals", but private conversations reveal a different story.
• The Saudi energy minister, Abdulaziz bin Salman, has complained that other Opec+ members were consistently pumping above their quotas, reducing the impact of the cuts.
• The kingdom has reduced output by one-fifth in the past three years to about 9mn b/d, the lowest since 2011, outside of the coronavirus pandemic.
• Analysts point to evidence that the cuts were becoming less effective, and the opportunity to curry favour with a US president who has repeatedly called for lower oil prices, as the drivers of the about-face.
• Kazakhstan's "clear lack of effort" to comply with its quota appears to have tipped the scales in favor of another large production increase.
• Opec+ members have reduced combined production by almost 6mn b/d over the past three years through a combination of official and so-called voluntary cuts.
• Saudi Arabia's decision to unwind production cuts may be related to the upcoming visit of US President Donald Trump to the region.

Statistics:

• Opec+ has reduced combined production by almost 6mn b/d over the past three years.
• Kazakhstan's quota was consistently above its intended 2.2mn b/d level in 2023 and 2024.
• Brent crude prices have touched four-year lows in recent weeks, with prices of around $90 in January 2024 compared to $75 in September 2023.
• Saudi Arabia has reduced output by one-fifth in the past three years to about 9mn b/d, the lowest since 2011, outside of the coronavirus pandemic.
• The kingdom's voluntary cut of 1mn b/d, in place since June 2023, is described by Prince Abdulaziz as the "Saudi Lollipop".

Sources:

• "Saudi Arabia's Oil Policy in Transition" by Bill Farren-Price, Senior Research Fellow at the Oxford Energy Institute.
• "Kazakhstan's 'clear lack of effort' to comply with its quota appears to have tipped the scales" by Leslie Hook.
• "Opec+ has failed to stop the decline in oil prices" by LSEG.