OPEC+ is grappling with a complex dilemma as it convenes this week to discuss the future of its production cuts. The alliance, which includes both OPEC and non-OPEC oil producers, is under increasing pressure to ease the cuts. However, the group finds itself stuck between conflicting priorities: maintaining high oil prices to secure revenue while avoiding losing market share to rival producers, particularly from outside the group.
Despite its public stance of aiming for “market stability,” OPEC+ is keenly aware that it needs oil prices to stay above $80 per barrel to avoid budget shortfalls, with countries like Saudi Arabia needing prices even higher—around $90 a barrel—to support national fiscal plans. Yet, these high prices are also spurring non-OPEC+ supply growth, especially from the U.S., as well as producers like Brazil and Guyana, further complicating OPEC’s strategy.
Caught Between Revenue and Market Share
For years, OPEC has emphasized that its production cuts are designed not to target specific prices but to stabilize the market. However, as oil prices hover just above $70 per barrel in recent weeks, the group faces difficult decisions ahead of its December 5 meeting (delayed from the original date of December 1). If OPEC+ begins to unwind the cuts in January as planned, it risks pushing prices below $70 per barrel, exacerbating oversupply issues and weakening demand.
A potential drop in oil prices would harm U.S. drillers, but it would hit OPEC countries and Russia even harder, as oil revenues are the cornerstone of their economies. This has left OPEC+ with few good options for how to ease the production cuts without further destabilizing the market.
A Rare Admission from OPEC
In a rare moment of transparency, Iran’s Governor for OPEC, Afshin Javan, recently acknowledged that OPEC’s price-supporting policies have inadvertently boosted U.S. oil production. In a now-deleted column on Iranian state news, Javan conceded that the strategy has “effectively encouraged higher supply outside the group, particularly from the U.S.” This admission highlights the limited room OPEC+ has to adjust its policies without exacerbating the very market dynamics it is trying to control.
Compounding the situation are the economic challenges in China, with Javan citing the “bleak economic prospects” there as another hurdle to OPEC’s plans. China’s slowdown is expected to dampen global oil demand, further complicating OPEC’s ability to unwind the cuts without triggering price declines.
Delays and the Trump Factor
OPEC+ has already delayed its planned production increases multiple times this year, as prices have remained below the critical $80 per barrel mark. The group had initially hoped to begin gradually bringing supply back to the market by the end of 2023, but recent market conditions have forced a reconsideration. Saudi Arabia, in particular, is pushing for further delays, with reports suggesting it may seek a pause of between three and six months. However, other OPEC+ members have shown little enthusiasm for additional cuts.
The political landscape adds another layer of uncertainty. U.S. President Donald Trump’s potential return to the White House could influence the market significantly. Analysts predict that Trump may tighten sanctions on Iran, further reducing its oil exports, which could provide OPEC+ with a justification to begin easing production cuts. However, if Trump follows through on threats of tariffs, it could harm global trade and reduce oil demand, complicating OPEC’s decision-making process even further.
Given these uncertainties, OPEC+ is likely to delay any changes to its production policy until at least March 2025. The group will likely wait to assess how the new U.S. administration’s policies affect the oil market before making any significant moves.
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