OPEC+ has reportedly begun to “unwind” voluntary production cuts, reducing oil prices to punish recalcitrant members, and perhaps to please President Donald Trump.
The “plus” configuration of the Organization of the Petroleum Exporting Countries (OPEC+), which includes Russia, reportedly agreed to accelerate production for a second consecutive month over the weekend. Oil prices immediately dropped by over $2.00 per barrel, threatening to reduce Russia’s primary income stream.
“Russia’s economy is dependent on oil revenues, which make up around 30% of its total state budget. Lower oil prices have repeatedly concerned Russian authorities,” the Kyiv Independent noted on Monday. The Ukrainians will be pleased by any development that makes it harder for Russia to finance the stalemated invasion it launched in 2022.
The production hikes for May and June were reportedly envisioned as punishment for Iraq and Kazakhstan, which have not fully complied with voluntary production cuts agreed to by most of the OPEC+ nations last year. The production cartel also criticized Russia for producing more oil than it originally agreed to.
Kazakhstan was especially saucy about placing its “national interests” above those of OPEC+, as Energy Minister Erlan Akkenzhenov put it two weeks ago. Akkenzhenov insisted his country was a “responsible participant in the international energy community” that remains committed to fulfilling its “obligations,” but he seemed frustrated by Kazakhstan’s minimal influence over OPEC decision-making.
Sources within OPEC+ told Reuters on Sunday that Saudi Arabia is “pushing OPEC+ to accelerate the unwinding of earlier output cuts.” The unwinding could be fully completed by October if Iraq, Kazakhstan, and Russia do not fall in line. The Saudis reportedly feel that the three lagging nations are taking advantage of the other OPEC members, who collectively agreed to reduce production in order to push prices up.
“The view from Saudi Arabia, in particular, is that they no longer want to be the ones carrying the heaviest burden if other countries in the group are not showing sufficient commitment to doing their part,” Richard Bronze of London-based research firm Energy Aspects told the left-wing New York Times (NYT).
“The key to knowing how far the Saudis will take what is starting to look like a price war is the nation’s tolerance for low oil prices over time,” ING Head of Commodities Strategy Warren Patterson predicted on Monday.
“The Saudis need around US$90 per barrel to balance their fiscal budget, quite a distance above current prices. Saudi Arabia will be able to lower its fiscal breakeven level by pumping more,” Patterson noted. Oil was trading at $57 per barrel on Monday.
The NYT thought the Saudis might also be “inclined to bolster the ambitions of President Trump, who is expected to visit Saudi Arabia and other Middle East countries soon.”
Trump urged the Saudis to reduce energy prices by increasing production and Riyadh looked far more favorably upon his request than it did upon the desperate pleas of the hostile President Joe Biden, who fairly begged the Saudis to bring prices down after boasting that he would make them “pariahs” on the world stage during his 2020 campaign.
