Oil Prices Could Plunge to $50, Saudi Arabia Warns Non-Compliant OPEC Members

On Wednesday, 2 October 2024, Saudi Arabia issued a stern warning that global oil prices could plummet to $50 per barrel if OPEC+ member states fail to adhere to agreed production cuts. The Wall Street Journal reported that the Saudi Minister of Energy, Prince Abdulaziz bin Salman, signalled this potential drop during a recent conference call with OPEC delegates.

According to insiders within the Organisation of the Petroleum Exporting Countries (OPEC), Saudi Arabia’s message has been interpreted as a veiled threat, hinting at the kingdom’s willingness to initiate a price war if non-compliant countries continue to violate production limits. Such an aggressive move could undermine oil prices in an effort to protect Saudi Arabia’s share of the global oil market.

OPEC+ Production Discussions

The OPEC+ alliance, which includes OPEC members and their allies, has faced growing internal tensions due to some countries exceeding their production quotas. While the group is scheduled to discuss easing production restrictions in December, Saudi Arabia’s warning signals that it may not tolerate further breaches of existing agreements.

Among the key offenders, Iraq exceeded its August production limit by 400,000 barrels per day, while Kazakhstan is planning to increase its output, citing the reopening of the Tengiz oil field, which has a capacity of 720,000 barrels per day.

During the call, Prince Abdulaziz emphasised that oversupply in the market could lead to severe consequences, stating, “There is no point in increasing production if there is no room for it in the market.” His remarks were particularly pointed towards nations that have been lax in following OPEC+ production cuts, stressing that they should “remain silent and honour their commitments to the group.”

Geopolitical Tensions and Oil Price Fluctuations

Saudi Arabia’s concerns over compliance come at a time of heightened geopolitical instability, with rising tensions in the Middle East. On Tuesday, Iran launched missiles at Israel, triggering a spike in global oil prices after several weeks of continuous decline. Brent crude, the international benchmark for oil prices, surged by 5% in the immediate aftermath of the attack but later stabilised at a 2.4% increase, just below $70 per barrel.

Western nations have expressed concerns that a broader conflict could disrupt oil exports from the Persian Gulf, a vital artery for global energy supplies. The Strait of Hormuz, which borders Iran, is a critical chokepoint for oil shipments, and any disruption could cause further price increases.

However, despite months of geopolitical tensions, oil prices have largely remained steady, which has frustrated Saudi officials. The limited impact of such instability on oil prices is partly due to some OPEC+ members’ failure to adhere to production cuts. Saudi Arabia’s aggressive stance indicates its intention to enforce discipline within the group to stabilise the market.

The coming months will likely see further negotiations among OPEC+ members as they seek to avoid a damaging price war. The upcoming December meeting could prove critical in determining the future direction of the global oil market, particularly if key players such as Iraq and Kazakhstan fail to curb their production in line with the agreed quotas.

Image source:  saudigazette.com.sa

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