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By Grant Smith
Saudi Arabia and its partners have discussed another large output hike, even as prices slide and demand wavers.
Saudi Energy Minister Prince Abdulaziz bin Salman, who has recently doubled down on a radical OPEC strategy shift. Photographer: Vladimir Simicek/AFP via Getty Images
OPEC+ looks set to push more oil onto a fragile global market for the third month in a row — but the motive behind the group’s strategy is no less elusive.
Saudi Arabia and its partners have discussed making another bumper increase of 411,000 barrels a day in July, even as prices slump and demand falters. The decision will be finalized at a meeting on Saturday.
It’s still unclear why the Organization of the Petroleum Exporting Countries and its allies are opening the taps, a move that breaks with years of efforts to shore up the oil market and has dragged prices to a four-year low.
Officials have offered a shifting range of explanations. Initially, they claimed to be satisfying “healthy” demand — a rationale at odds with Brent’s swift but brief collapse below $60 a barrel.
Delegates subsequently said the Saudis had chosen to punish members such as Kazakhstan and Iraq for persistent over-production. Five years ago, Riyadh prevailed in a comparable battle-of-wills with fellow member Russia.
A KazMunayGas oil field in Akkystau village near Atyrau, Kazakhstan. Photographer: Bloomberg
But Kazakhstan still isn’t reining in operations, and its energy minister said today the country can’t cut output, casting doubt on chastisement as an explanation.
Other officials suspect the supply surge is a concession to US President Donald Trump, who has urged OPEC to lower fuel costs and visited its Middle East leaders this month to widespread fanfare.
More recently, they’ve pointed to another possibility: that the Saudis seek to reclaim the market share they’ve sacrificed to American shale drillers and other rivals during years of cutbacks.
This would imply a seismic break with the strategy of market management that Riyadh has embraced for the past decade — and perhaps even the twilight of OPEC+ itself.
It could also mean enduring prices near $65 a barrel or lower — far below the levels the Saudis need — for the foreseeable future. The last time the kingdom picked a fight with shale, back in 2014, it threw in the towel after 18 months.
Whether Riyadh has the stomach for another battle like that remains to be seen.
–Grant Smith, Bloomberg News
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