Oil & Gas

Saudi Arabia, OPEC’s largest oil producer, is rumored to be speeding up the process of unwinding its oil production cuts, causing fluctuations in oil prices. In September, the Brent forward curve saw notable shifts, with backwardation at the end of August giving way to a flattening by mid-September, followed by a partial recovery and another round of flattening as concerns over increased OPEC+ supply hit the markets. The futures market has also turned bearish, with short positions in Brent oil now outnumbering long positions for the first time, signaling worries about more oil entering the market.

Reports indicate that Saudi Arabia is moving away from its $100-a-barrel price target and preparing to boost production, which could lead to lower prices in the near term. This comes as the kingdom and other OPEC+ members prepare to unwind longstanding production cuts, despite earlier delays and concerns about a weak global economy, particularly in China. The speculation is that Saudi Arabia is determined to bring back its production by December, even if market conditions remain unfavorable.

Meanwhile, commodity analysts at Standard Chartered offer a different view, arguing that Saudi Arabia’s actions are meant to pressure other OPEC+ members to adhere to their production cut commitments. With several OPEC members, including Russia and Iraq, failing to meet their quotas, Saudi Arabia appears to be signaling that it will no longer shoulder the burden alone. Analysts believe Saudi Arabia is not necessarily targeting market share but instead emphasizing compliance within OPEC+.

Despite these developments, Saudi Arabia faces its own challenges, including a significant budget deficit due to current oil prices falling below what is needed to balance its finances. While the kingdom can manage lower prices through alternative funding methods or even slowing its Vision 2030 project, the broader oil market remains uncertain. For now, oil producers are likely to remain cautious, avoiding a repeat of previous market disruptions that led to severe price drops during the COVID-19 pandemic.