Despite oil prices hovering around $60, OPEC+ is expected to further increase production, driven by pressure from US President Donald Trump and Saudi Arabia’s efforts to penalize quota violators within the cartel. The group, comprising 22 countries heavily reliant on oil revenues, will hold two meetings this week – an online gathering with all members and a separate meeting with the “V8” nations that have made significant production cuts.
Internal Disagreements and External Pressures
Analysts anticipate the V8 countries to boost production by 411,000 barrels per day in July, exceeding the initial plan of 137,000 barrels. This decision could further depress prices, which have slumped to levels last seen during the pandemic. OPEC+ justifies this move by citing “current healthy market fundamentals” reflected in low oil inventories, but observers are skeptical due to concerns about global demand amid Trump’s trade war.
“It’s absolutely impossible to interpret the change in position of the eight OPEC+ countries without referring to the pressure from Donald Trump,” according to Francis Perrin, a senior research fellow at IRIS. Trump had previously asked Saudi Arabia and other OPEC nations to “bring down the cost of oil” to combat inflation.
Quota Violations and Saudi Arabia’s Response
Kazakhstan, a major offender, has increased production due to the Tengiz project operated by Chevron. Other countries like Iraq and the UAE have also exceeded their quotas. “Kazakhstan continues to overproduce massively above its OPEC+ quota, and Saudi cannot walk back on its threats of punishing the cheaters without losing credibility,” DNB Carnegie analysts noted.
Economic Implications
Low oil prices pose a challenge for Saudi Arabia, the world’s largest oil exporter, in financing its economic diversification plans. “The Saudi Arabian economy depends on oil,” emphasized Carole Nakhle, an economist at the Surrey Energy Economics Centre. OPEC+ is also monitoring discussions between Tehran and Washington on Iran’s nuclear program, which could impact the global oil market if sanctions are lifted.