Saudi Arabia’s shift in oil production strategy has surprised many, going against commitments made at the recent OPEC meeting on September 5. The Saudi government initially agreed to production cuts to boost oil prices back to $100 per barrel. However, they have now decided to maintain their market share due to increased pressure from non-OPEC producers like the United States and decreasing demand from China.
This change means increased Saudi oil output instead of the expected reduction, which is likely to keep oil prices lower at least through the upcoming November elections. As a result, this development could undermine economic arguments related to inflation and oil prices. Russia, which heavily relies on oil revenue to fund its military activities in Ukraine, may face further financial pressures and potential economic destabilization due to the lower oil prices.
Dan Yergin, vice chairman of S&P Global, commented on the situation, saying, “It is amazing to see that war doesn’t affect the price, and that’s because there’s been no disruption.
Saudi changes oil production strategy
There’s still over five million barrels a day of shut-in capacity in the Middle East.”
The recent sell-off in oil was worsened by a report suggesting that prices may remain lower for a prolonged period.
OPEC+ recently postponed planned output hikes from October to December, but analysts speculate that the group might delay the hikes again due to the low oil prices. Yergin also noted that soft demand in China has been weighing on the oil market for months. “The thing that’s dominated the market is the weakness in China.
Half the growth in world oil demand over a number of years has simply been in China, and it hasn’t been happening,” he said. “The big question is, will stimulus lead to a recovery in China? That’s what the market is struggling with.”
The changing dynamics reflect the ongoing volatility in the global oil market and its far-reaching geopolitical implications.
As the market anticipates increased output from OPEC+ starting in December, oil prices continue to face downward pressure, with the potential for further shifts in the coming months.
