This week, the OPEC+ group (Saudi Arabia, Russia, the UAE, Kuwait, Iraq, Kazakhstan, Algeria, and Oman) announced another increase in oil production, this time by 137,000 barrels per day starting in October, in addition to the group’s growth in output of 547,000 barrels in September.
Over the past two years, Saudi Arabia has led efforts to expand production, which has driven prices down. With an excess production capacity of about 2 million barrels per day, Saudi Arabia is the group’s central player and holds wide maneuvering space.
At first glance, the decision to raise production seems illogical: More oil in the market means lower prices. Why would Saudi Arabia, which is struggling with a budget deficit and has grandiose development plans requiring massive capital, harm its own economy by boosting output?
Most likely, this is a step meant to maintain market share. Saudi Arabia wants to ensure that its key customers, especially in Asia, don’t turn to competitors. By flooding the market with more barrels, it secures its status as a reliable supplier. In addition, the increase in quotas allows Saudi Arabia to remind other countries who really calls the shots in OPEC+ and demand that they themselves meet their own quotas.
It’s also possible that Riyadh seeks to challenge its competitors. If oil prices drop, North American oil companies will struggle to profit. The increase in output also reassures major oil consumers (the United States, China, India) and demonstrates that Saudi Arabia won’t allow prices to soar and weigh down the global economy. This earns it international credit. In this context, there may also be pressure from President Trump, who has called for lower gas prices at the pump to ease the cost of living and reduce inflation (even at the cost of challenging the shale industry) and possibly also to increase pressure on the Russian economy.
At the end of the day, Saudi Arabia is sacrificing some immediate profits in order to secure market control, customer loyalty, and preparation for a future in which oil demand is expected to decline. The kingdom is giving up profits today in order to preserve its position and leverage in the long term. The step allows Riyadh to strengthen its role as leader of OPEC+ and tighten its ties with the United States—and to continue using oil not only as an economic tool but also as a political asset.
This week, the OPEC+ group (Saudi Arabia, Russia, the UAE, Kuwait, Iraq, Kazakhstan, Algeria, and Oman) announced another increase in oil production, this time by 137,000 barrels per day starting in October, in addition to the group’s growth in output of 547,000 barrels in September.
Over the past two years, Saudi Arabia has led efforts to expand production, which has driven prices down. With an excess production capacity of about 2 million barrels per day, Saudi Arabia is the group’s central player and holds wide maneuvering space.
At first glance, the decision to raise production seems illogical: More oil in the market means lower prices. Why would Saudi Arabia, which is struggling with a budget deficit and has grandiose development plans requiring massive capital, harm its own economy by boosting output?
Most likely, this is a step meant to maintain market share. Saudi Arabia wants to ensure that its key customers, especially in Asia, don’t turn to competitors. By flooding the market with more barrels, it secures its status as a reliable supplier. In addition, the increase in quotas allows Saudi Arabia to remind other countries who really calls the shots in OPEC+ and demand that they themselves meet their own quotas.
It’s also possible that Riyadh seeks to challenge its competitors. If oil prices drop, North American oil companies will struggle to profit. The increase in output also reassures major oil consumers (the United States, China, India) and demonstrates that Saudi Arabia won’t allow prices to soar and weigh down the global economy. This earns it international credit. In this context, there may also be pressure from President Trump, who has called for lower gas prices at the pump to ease the cost of living and reduce inflation (even at the cost of challenging the shale industry) and possibly also to increase pressure on the Russian economy.
At the end of the day, Saudi Arabia is sacrificing some immediate profits in order to secure market control, customer loyalty, and preparation for a future in which oil demand is expected to decline. The kingdom is giving up profits today in order to preserve its position and leverage in the long term. The step allows Riyadh to strengthen its role as leader of OPEC+ and tighten its ties with the United States—and to continue using oil not only as an economic tool but also as a political asset.