The Saudi oil minister has cautioned that there is a possibility for oil prices to plummet to $50 per barrel if OPEC+ members fail to adhere to the agreed-upon production restrictions, according to sources within the cartel as reported by the Wall Street Journal.
The remarks from the Saudi minister were perceived by other oil-producing nations as an implicit warning that Saudi Arabia is prepared to initiate a price war to safeguard its market share should other countries not comply with the group’s agreements.
Key members of the OPEC+ alliance, comprised of the Organization of the Petroleum Exporting Countries and its allies, recently decided to ease production constraints in December as previously planned, following a confirmation during an online meeting.
On Wednesday, benchmark oil prices observed an increase, with the Brent contract rising by 1.9% to nearly $75 a barrel. This rise in prices can be attributed to concerns over supply disruptions due to escalating conflicts in the Middle East.
Oil prices continued to rise on Thursday, with Brent crude increasing by 0.91% to $74.57 a barrel and WTI climbing by 1.03% to $70.82 per barrel.
There are apprehensions in Western nations that escalated conflicts could impede oil exports passing through the Strait of Hormuz, potentially leading to a surge in oil prices.
Despite ongoing geopolitical tensions, which have failed to substantially impact oil prices, Saudi Arabia remains frustrated as some members within OPEC have not adhered to production limits throughout the year. Iraq and Kazakhstan were specifically mentioned for surpassing their production quotas.
Following reports by the Wall Street Journal, OPEC released a statement on X refuting the claims of non-compliance as “wholly inaccurate and misleading.”
While the OPEC+ coalition has made efforts to stabilize markets through production cuts, major benchmarks have witnessed a decline of approximately 16% in the last quarter. The group’s share of the oil market has diminished to 48% this year, compared to 50% in 2023 and 51% in 2022, according to data from the International Energy Agency.
Some members of the cartel have exceeded their agreed production limits, making the supply cuts less effective. In addition to Iraq and Kazakhstan, Russia also produced more than its allocated quota through July.
Despite geopolitical tensions and concerns, oil prices remain below $75 a barrel, the lowest level in nine months, predominantly due to sluggish economic growth. Analysts suggest that Saudi Arabia requires oil prices to be around $85 per barrel to support its economic plans.
Due to the persisting low prices, OPEC+ members have postponed a planned production increase until December after a virtual meeting last month, postponing the easing of voluntary cuts originally set for October.
