When officials from major oil-producing countries convened on Sunday, their mission was to stabilize volatile markets by affirming their commitment to restricting oil supplies. The group, known as OPEC Plus and led by Saudi Arabia and Russia, also sought to placate dissatisfied producers such as the United Arab Emirates (UAE), hinting at future permissions to increase their oil production.
The agreement reached in Riyadh, the Saudi capital, is unsurprisingly complex, reflecting the need to balance various interests. The primary goal is to bolster oil prices through deep production cuts that will extend into the next year. At the same time, the deal outlines a gradual phasing out of some of these cuts. Starting in October, oil output for eight countries, including Saudi Arabia, the UAE, and Iraq, will gradually rise in monthly increments through 2025.
Saudi Arabia, for instance, plans to increase production to nearly 10 million barrels per day by the end of 2025, up from approximately nine million barrels currently. This level remains significantly below Saudi Arabia’s capacity of 12 million barrels per day. The deal represents a delicate balancing act given the diverse interests within OPEC Plus, and it is seen as the best possible outcome under the circumstances.
Raad Alkadiri, a senior associate in energy security and climate change at the Center for Strategic and International Studies, characterized the agreement as a form of “short-term market management.” He expressed confidence that oil markets would find the deal satisfactory, given that OPEC Plus retains the flexibility to adjust its strategy if market conditions change. Indeed, a news release from the Riyadh meeting emphasized that the “monthly increases can be paused or reversed, subject to market conditions.”
However, not all analysts are convinced. Some believe the deal does not go far enough to address the oversupply of oil. Goldman Sachs analysts expressed surprise at the detailed plan to unwind production cuts, given the reports of unexpectedly high supplies. Similarly, veteran oil analyst Gary Ross, CEO of Black Gold Investors, suggested that the agreement might not alleviate investor concerns about the oil market’s stability.
Since late 2022, OPEC Plus has navigated a series of complex output reductions aimed at supporting prices. While most producing countries have complied with the program, some, like the UAE and Iraq, have exceeded their production ceilings. The UAE’s persistence appears to have paid off, as it received a gradual 300,000-barrel-per-day increase to its official ceiling. The UAE has been investing heavily with international partners, such as ConocoPhillips and TotalEnergies, to boost its production capacity and has argued that its ceiling was unrealistically low.
Despite the current fluctuations, Brent crude, the international benchmark, sold for about $82 a barrel on Friday. This price is significantly lower than the over $100 a barrel reached in 2022 following Russia’s invasion of Ukraine but remains high enough to secure substantial profits for major Western oil companies like Shell and Exxon Mobil. However, oil-producing nations are eager for even higher prices to fund development and social programs. In a bid to extract more funds from the industry, Saudi Arabia announced on Sunday the sale of a small percentage of shares in its national oil company, Saudi Aramco, potentially raising up to $13 billion.
The intricate dynamics within OPEC Plus highlight the ongoing challenges in managing global oil markets. The recent agreement, while not perfect, represents a strategic effort to balance immediate market needs with longer-term production goals, aiming to sustain economic stability for oil-producing nations amidst a complex global landscape.