Saudi minister warns of $50 oil as OPEC+ members flout production curbs
Summary
The kingdom called out members for overproducing, in what was seen as a veiled threat of a price war.The Saudi oil minister has said that prices could drop to as low as $50 per barrel if so-called cheaters within OPEC+ don’t stick to agreed-upon production limits, according to delegates in the cartel.
The statements were interpreted by other producers as a veiled threat from the kingdom that it is willing to launch a price war to keep its market share if other countries don’t abide by the group’s agreements, they said.
Key members of an alliance made of the Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, are set to discuss whether to ease production curbs in December at a scheduled online gathering Wednesday.
After Iran launched missiles at Israel on Tuesday, oil prices climbed after weeks of steady declines. Brent crude, the international benchmark, gained as much as 5% before settling at 2.4% higher at just under $70.
There are fears in the West that a wider war could choke oil exports from the Gulf that pass through the Strait of Hormuz, which borders Iran, and push prices higher.
But geopolitical tensions have persisted for months without meaningful effect on oil prices, and the declines have been frustrating for Saudi officials in part because other cartel members have flouted plans to limit production for much of this year.
During a conference call last week, Prince Abdulaziz bin Salman, the oil minister of OPEC kingmaker Saudi Arabia, warned fellow producers prices could drop to $50 a barrel if they don’t comply with agreed production cuts, according to OPEC delegates who attended the call.
They said he singled out Iraq, which overproduced by 400,000 barrels a day in August, according to data provider S&P Global Ratings, and Kazakhstan, whose production is set to rise with the return of the 720,000-barrels-per-day Tengiz field.
The Saudi message was “there is no point in adding more barrels if there room for them in the market," said a delegate who attended. “Some better shut up and respect their commitments toward OPEC+."
The Saudi oil ministry didn’t respond to a request for comment.
Oil prices have been on a downward slope in recent months, with major benchmarks losing around 12% last quarter. This comes despite the OPEC+ coalition’s efforts to stabilize markets through production cuts. The group put forward multiple extensions to these curbs and yet prices dropped further.
The group’s production cuts mean their share of the oil market has shrunk. This year it reached 48%, down from 50% in 2023 and 51% in 2022, data from the IEA showed. Competition is set to heat up further next year.
Planned production increases in the U.S., Guyana and Brazil are expected to add over 1 million barrels a day to global oil supply. Brazil joined the OPEC+ group this year but said it won’t participate in the output cuts.
Some cartel members that signed on to the cuts have pumped more barrels than they promised, rendering the supply curbs less effective. In addition to Iraq and Kazakhstan, Russia also produced more than its quota this year through July, according to Aug. 8 data from S&P Global.
Despite rising geopolitical tensions, prices are languishing below $75 a barrel—their lowest level in nine months—largely due to slowing economic growth. Saudi Arabia needs prices at $85 per barrel to help fund its economic transformation, analysts say.
The weak prices forced OPEC+ members to delay a production increase for two months following a virtual meeting last month until December. The group had originally agreed in June to start easing voluntary cuts in October.
The kingdom has shown in the past it can open up the spigots if it feels other producers are taking advantage of its efforts to defend oil prices.
Saudi Arabia initiated a price war on oil with Russia in March 2020. The kingdom’s decision to pump to record levels amid the Covid pandemic facilitated a 65% quarterly fall in the price of oil to 17-year lows, with some prices in the U.S. turning negative for the first time ever.
Another move by Saudi Arabia to boost production to punish other producers led to a collapse of oil prices to below $10 per barrel in 1986.
Write to Benoit Faucon at benoit.faucon@wsj.com, Summer Said at summer.said@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com
