Saudi Arabia Considers Opening the Oil Floodgates: Tensions Within OPEC+

In recent weeks, the likelihood that Saudi Arabia might increase its oil production seems to have risen. A report from Capital Economics points to growing dissatisfaction among OPEC+ members. This organization, consisting of the Organization of the Petroleum Exporting Countries and its allies, is apparently experiencing "deteriorating cohesion," which fuels discussions about a possible production increase. According to Kieran Tompkins, climate and commodities economist at Capital Economics, although the focus in the oil market has shifted to geopolitical risks and short-term supply disruptions, the likelihood has increased that Saudi Arabia may relax its oil policy. A report recently uncovered by the Wall Street Journal, though dismissed as false by OPEC, suggests that Saudi Arabia's oil minister has warned other producers of a price drop should there be deviations in production. An article in the Financial Times suggests that Saudi Arabia could withstand a price drop relatively comfortably thanks to alternative financing measures, which is evidently understood as a subtle indication that Saudi Arabia might sanction "unreliable" producers. Historically, significant changes in Saudi Arabian oil policy, such as those in the 1980s and 2010s, led to a decline in oil prices. James Swanston from Capital Economics stated that the reasons for a production increase are becoming stronger, even though such a decision would be painful from an economic standpoint. Nonetheless, it would be necessary to regain market share in the long term. Currently, a major change in oil policy is not expected immediately, but an increase in production from the current 9 million to 12.5 million barrels per day would only be conceivable with a significant price drop to below 50 dollars per barrel. The coming months, and particularly the OPEC+ meeting on December 1, could be decisive as future production strategies will be negotiated there.