Despite ongoing challenges with low oil prices, OPEC+—the coalition of oil-producing nations—looks set to further increase production in the coming months. Recent announcements from key members such as Saudi Arabia, Russia, and six others reveal a significant uptick in oil output for May and June, despite the oil market struggling at $60 per barrel.
OPEC+ Strategy Shifts Amid Price Slump
OPEC+, which consists of 22 countries—many heavily reliant on oil revenues—has previously relied on limiting production to push prices higher. This tactic has been based on creating a supply shortage by keeping millions of barrels of oil in reserve. However, recent months have shown the group veering from this strategy, driven in part by mounting pressures from US President Donald Trump and Saudi Arabia’s push to penalise members violating agreed quotas.
This week, OPEC+ is set to hold two meetings. The first will be a virtual session on Wednesday with all members, aimed at discussing the group’s collective strategy moving forward. The second, scheduled for Sunday, will involve only the “V8” group—those eight OPEC+ members who have implemented the largest cuts in recent years.
Analysts, including Giovanni Staunovo of UBS, are particularly focused on the V8’s decision for July production. The group is expected to raise production by 411,000 barrels per day, matching the increases set for May and June, far surpassing the originally planned 137,000-barrel-per-day rise.
This decision could put additional downward pressure on oil prices, which are already near their lowest levels since the pandemic.
Internal Disagreements and Global Pressures
OPEC+ has justified its strategy shift by pointing to “healthy market fundamentals,” especially the low oil inventories in many markets. However, scepticism remains over these claims, as global demand is still under strain due to ongoing trade tensions, particularly those exacerbated by the US-China trade war initiated by President Trump.
Since late 2022, OPEC+ countries, including Saudi Arabia and Russia, have been cutting production by 2.2 million barrels per day to stabilize the market. Early this year, OPEC+ had announced plans to release some of the reserves but has since significantly accelerated the pace of these releases.
Internal disagreements among member states have also contributed to the shift. For instance, Kazakhstan has been a notable offender, consistently exceeding its production quota. This overproduction, linked to Kazakhstan’s Tengiz oil field project operated by Chevron, has drawn ire from Saudi Arabia, which has promised to penalise those failing to comply with agreed quotas. Other countries, including Iraq and the UAE, have also been accused of exceeding their limits.
Saudi Arabia’s position on this matter remains firm, particularly against Kazakhstan. Analysts from DNB Carnegie highlight that Saudi Arabia cannot afford to backtrack on its threats without losing credibility within OPEC+.
Trump’s Influence and Broader Market Implications
The pressure from the US, specifically President Trump’s requests to lower oil prices to combat domestic inflation, has added another layer of complexity to OPEC+’s decisions. Trump had publicly requested Saudi Arabia and other OPEC nations to lower the price of oil in January. While his recent diplomatic tour through Gulf countries did not address this issue, it seems the US is content with OPEC+’s actions for now.
Another significant factor influencing OPEC+ strategy is the potential easing of sanctions on Iran. Should negotiations between Tehran and Washington lead to a nuclear deal, Iranian oil could flood the global market, further impacting prices.
For Saudi Arabia, the world’s largest oil exporter, these low prices present a challenge. The country is attempting to diversify its economy away from oil dependency, but with prices under pressure, its economic ambitions remain precarious.
“The Saudi Arabian economy depends heavily on oil,” said Carole Nakhle, an economist at the Surrey Energy Economics Centre.
Conclusion
As OPEC+ prepares to increase oil production in the coming months, internal disagreements, external pressures from President Trump, and the possibility of Iranian oil returning to the market could continue to challenge the group’s strategy. Saudi Arabia, in particular, faces the difficult task of balancing compliance with quotas while trying to manage its long-term economic goals, which are heavily tied to oil revenues.