Jeddah, Saudi Arabia – The recent volatility in oil prices has once again attracted global attention as rumors circulate about Saudi Arabia’s potential decision to accelerate the unwinding of its oil production cuts. The Brent forward curve has seen significant fluctuations throughout September, starting from backwardation at the end of August to a flat trend by September 10th, followed by periods of recovery and steepening until September 24th when it flattened once more. This uncertainty in the oil futures markets has been further fueled by reports indicating a bearish sentiment, with money managers holding more short positions in Brent futures than long positions for the first time on record.
Amid this backdrop, the Financial Times recently reported that Saudi Arabia may be relinquishing its unofficial target of $100 per barrel for crude oil, signaling a shift towards increasing output despite the potential impact on oil prices. Despite initial plans for Saudi Arabia and seven other OPEC+ members to ease production cuts starting in October, a two-month delay has raised doubts about the timing of this increase, contributing to Brent prices falling below $70 per barrel. The Kingdom now reportedly aims to resume production as scheduled on December 1, regardless of market conditions, in an effort to safeguard its market share against non-OPEC producers, particularly the United States.
While Saudi Arabia’s rumored actions have raised concerns among oil markets given its significant role as OPEC’s key swing producer, some analysts offer a more nuanced perspective. Standard Chartered, for instance, suggests that Saudi Arabia’s planned output increase of 84 thousand barrels per day each month starting December 2024 may not necessarily signal a drive for market share. Instead, the bank views this as a strategic move to pressure other OPEC+ members to fulfill their pledges and maintain production discipline.
The broader context of OPEC+ dynamics also plays a crucial role in understanding the current situation. Earlier commitments made by Russia, Iraq, and Kazakhstan to compensate for overproduced crude volumes demonstrate a collective effort within OPEC+ to stabilize oil markets. With these compensatory measures in place, OPEC production is expected to decrease in the coming quarters if all commitments are honored.
Looking ahead, the market’s assumption that Saudi Arabia will overlook any backsliding on pledges made by other OPEC+ nations may be misguided. Recent visits by OPEC officials to Iraq and Kazakhstan suggest a firm stance on compliance with production cuts, indicating a commitment to market stability. As oil prices remain below the levels required to balance budgets in oil-dependent economies like Saudi Arabia, the pace of production increases will likely be subject to careful consideration, balancing the need for revenue against the risk of market volatility.
In conclusion, the oil market awaits further developments as Saudi Arabia navigates its policy decisions in response to evolving market conditions. While Saudi Arabia has the capacity to influence oil prices, the broader context of OPEC+ cooperation and compliance will ultimately shape the trajectory of the oil market in the months to come.