What is Saudi Arabia going to do?

[dan_s]

Last week the Financial Times published an article based on rumors and misinformation, which caused a 3% drop in the price of oil. FT implied that Saudi Arabia would significantly increase production to gain market share. Below is a different, and I believe more accurate point of view:

From OilPrice.com
According to StanChart, Saudi Arabia’s 84 thousand barrels per day (kb/d) output increase each month starting December 2024 does not necessarily mean that the Kingdom has changed policy and is aiming for market share, pointing out that Saudi Arabia has not had a price target for many years.

In StanChart's view, the major underlying story is that Saudi Arabia is sending a warning that it will accelerate the phasing out of voluntary cuts unless all partners involved fulfill their pledges. StanChart views the latest move by Saudi Arabia as one of several warnings it has issued in recent times to any country seeking to free-ride on the compliance of others.

Compliance with pledges will be key in determining whether oil markets remain tight or not.

Back in July, Russia, Iraq and Kazakhstan submitted their compensation plans to the OPEC Secretariat for overproduced crude volumes for the first six months of 2024. According to OPEC, the entire over-produced volumes will be fully compensated for over the next 15 months through September 2025, with Russia ‘paying back’ a cumulative 480 kb/d, Iraq 1,184 kb/d and Kazakhstan 620 kb/d. According to StanChart, the compensatory output cuts by the three OPEC members work out to a combined 370 kb/d reduction in October, and then an amount varying between 162 kb/d and 206 kb/d for November 2024 through to September 2025. StanChart has worked out that adding the compensation schedule to the recently announced reduction in targets due to delaying the implementation of tapering will result in OPEC production clocking in at 530 kb/d lower in Q4-2024; 540 kb/d lower in Q1 and Q2-2025 and 560 kb/d lower in Q3-2025, if all commitments are kept.

StanChart has argued that the market's current assumption that there will be no compensation reduction is wrong because it’s highly unlikely that other OPEC+ countries would take it lightly. StanChart says Saudi Arabia is unlikely to accept any further backsliding on promises made by the overproducers, noting that the high-profile visits to Iraq and Kazakhstan by the OPEC Secretary General, Haitham al Ghais suggests that OPEC intends to follow up on the promised cuts.

“I received strong assurances that Iraq continues to be fully committed to the DoC’s ongoing market stabilization efforts. During this visit, Iraq presented clear and determined steps to compensate for overproduced volumes and gave assurances that it would achieve full conformity going forward, ”al Ghais said after visiting Baghdad.

[dan_s]

Another article on this topic: https://oilprice.com/Energy/Oil-Prices/Saudi-Arabia-Warns-Oil-Prices-Could-Drop-to-50.html

In my opinion, Saudi Arabia is not and should not be worried about U.S. oil production, which has actually declined since December, 2023. They are just warning other members of OPEC+ that they need to comply with their quotas.

At the current active drilling rig count, U.S. oil production is not going to increase.

[aja57]

These is a lot of bull crap going on in the government media... More from the Operation Mockingbird crew aka WSJ..

https://www.forexlive.com/news/opec-calls-out-the-wall-street-journal-20241002/