Saudi Arabia has signaled a potential price war in the oil market if other OPEC+ members do not adhere to the agreed production cuts. Sources revealed that the Saudi oil minister warned that prices could fall to $50 per barrel if members continue to exceed their quotas. This message is seen as a direct caution to countries like Iraq and Kazakhstan, who have reportedly surpassed their production limits in recent months.
The OPEC+ alliance is set to meet online to discuss whether to ease production restrictions. Amid geopolitical tensions, especially after Iran fired missiles at Israel, oil prices saw a temporary surge. Brent crude increased by up to 5% before settling at a 2.4% gain, slightly below $70 per barrel. Despite these fluctuations, Saudi officials are frustrated as prices have been on a downward trend for months, primarily due to non-compliance by some OPEC members.
Recent data from S&P Global indicates that Iraq's daily production exceeded its limit by 400,000 barrels in August. Kazakhstan is also poised to increase output with the recovery of its Tengiz field, which produces 720,000 barrels per day. This non-compliance has diluted the impact of the production cuts.
OPEC+ members have been struggling to stabilize the market despite agreeing to extend production cuts. The reduced market share for OPEC, now down to 48% from 50% in 2023, adds to the challenge. Competition is expected to intensify as the U.S., Guyana, and Brazil plan to increase output by over 1 million barrels per day. Notably, Brazil, although a part of OPEC+, has stated it will not participate in production cuts.
Despite ongoing geopolitical tensions, oil prices remain below $75 per barrel due to economic slowdown, which is the lowest in nine months. Analysts believe that Saudi Arabia requires an oil price of $85 per barrel to fund its economic transformation plans. Due to the weakness in oil prices, OPEC+ delayed planned production increases by two months until December, even though they initially intended to ease cuts starting October.
Saudi Arabia's history suggests that it may open its oil taps if it feels other producers are taking advantage of its efforts to defend oil prices. This strategic shift could dramatically affect global oil markets.
