By Alex Lawler, Ahmad Ghaddar and Robert Harvey
LONDON (Reuters) – OPEC+ will have little room to maneuver on oil policy at its December meeting: it would be risky to increase production due to weak demand, and difficult to deepen supply cuts as some members want to pump more, sources and analysts said.
The Organization of the Petroleum Exporting Countries and its allies led by Russia, the group known as OPEC+, which pumps about half the world’s oil, have a plan to gradually increase production this year by just a few postponed for months.
The economy could again curb output increases at the Dec. 1 meeting due to weak global oil demand, according to three OPEC+ sources familiar with the discussions. Ministers last postponed the increase for a month when they met virtually on November 3.
“I can’t say it is popular within the group, but there would be no strong objection to a delay until the first quarter,” said one of the OPEC+ sources, who asked not to be named.
Two other OPEC+ sources said it was too early to say what the group will decide. OPEC and the Saudi government communications agency did not immediately respond to a request for comment.
OPEC+ planned to slowly reverse production cuts in 2024 and 2025 with small increases over many months. But a slowdown in Chinese and global demand, and rising production outside the group, have undermined that plan.
As a result, OPEC+ has maintained production cuts for longer than expected. The group has cut production by 5.86 million barrels per day, or about 5.7% of global demand, in a series of steps agreed since 2022 to support the market.
Despite OPEC+’s cuts and delays in production increases, oil prices have largely remained between $70 and $80 per barrel this year.
Saudi Arabia was keen to address an internal problem of poor compliance with production targets by some OPEC+ members, sources said, before proceeding with any production increases for the group.
Some member states, including Iraq, have reduced production in recent months, improving compliance. That could give the group some room for a coordinated small increase in supply – as long as demand supports it.
However, increasing production in a market with little demand growth would risk weakening prices. It’s a tactic that OPEC+ could use to put pressure on rivals, but would also hurt OPEC+ countries that rely on oil revenues.
Many OPEC members need a price above $70 to balance their budgets and cannot sustain a long period of oil below $50.
LOW CHANCE OF ‘PRICE WAR’
Nevertheless, OPEC+’s declining market share has led to speculation that OPEC+ could sooner or later unleash a price war to drive out rivals. The last time OPEC did this was in 2014-2015, when it increased production to put pressure on US shale companies.
OPEC+’s oil production is equivalent to 48% of world supply, the lowest since its creation in 2016 with a market share of more than 55%, according to Reuters calculations based on International Energy Agency figures.
The US has become the world’s largest oil producer, pumping more than 20 million barrels per day, or a fifth of global production. Saudi Arabia’s largest oil production is less than 9% of the global oil total, while OPEC supplies about 25%.
The 2014 price war had major consequences for shale producers, but ultimately failed to stop the boom. US shale gas producers and other producers have also cut costs over time, making it harder for OPEC+ to win another battle.
According to consultant Rystad Energy, the cost of producing onshore oil in the Middle East has an average breakeven price of $27 per barrel. Rystad estimates North American costs at $45, down from $85 in 2014.
“Crude oil prices need to be below $40-$45 to significantly limit supply from non-OPEC countries,” said Aldo Spanjer of BNP Paribas (OTC:), who puts the chance of a price war at just 20%.
Consolidation in the US oil industry would also make it harder for OPEC+ to win a price war. In the last two years American majors ExxonMobil (NYSE:) and Chevron (NYSE:) have bought some of the largest shale producers. They have deep pockets and diverse portfolios.
“We think speculation about a possible supply war is overblown,” said Richard Bronze of Energy Aspects. “Unlike in 2015-2016, the group recognizes that U.S. and broader non-OPEC production will not decline anytime soon.”
DEEPER CUTTING ALSO UNLIKELY
Analysts at Macquarie said the prospects for rising OPEC+ output in the first half of 2025 appeared weak given weak seasonal demand.
A deepening of production cuts is also unlikely as several OPEC+ members push for more pumping, not less.
Chief among these is the United Arab Emirates, which claims it has maintained production for too long at around 3 million barrels per day, far below capacity.
The UAE has already secured an increased quota for 2025, and any delay in production increases would require addressing this issue, OPEC+ sources said. Iraq has also pushed for a higher quota.
“We think deeper cuts, which may ultimately be needed to support oil prices next year, will be difficult to stomach,” Macquarie’s Walt Chancellor said.
