OPEC+ is once again grappling with familiar challenges: some of its members are eager to increase crude oil production after a prolonged period of restraint. Historically, OPEC has maintained that its primary mission is to balance global supply and demand, not to directly influence prices. However, the rise of U.S. shale oil a few years ago forced OPEC to seek additional support to fulfill this-or any other-primary mission, leading to the formation of OPEC+. With Saudi Arabia and Russia at the forefront, OPEC+ was able to maintain significant control over the world's oil markets. But this collaboration underscored a concerning reality: OPEC alone could no longer exert the necessary influence over the oil market.
Even OPEC+'s ability to control the markets was called into question-and not by the UAE, but by Russia, who didn't want to deepen oil production cuts further at the start of the Covid pandemic. While Saudi Arabia pushed for deeper cuts, Russia refused, with the market seeing firsthand what it looks like when OPEC+ members aren't on the same page. Both nations threatened to flood the market with oil, leading to more oversupply and a catastrophic price drop.
It was the first crack, but it wouldn't be the last.
Not all OPEC members were content with their assigned quotas. These quotas are determined by various factors, including the production capacity of individual members, reviewed by OPEC+ and secondary sources. The UAE, in particular, has historically…
OPEC+ is once again grappling with familiar challenges: some of its members are eager to increase crude oil production after a prolonged period of restraint. Historically, OPEC has maintained that its primary mission is to balance global supply and demand, not to directly influence prices. However, the rise of U.S. shale oil a few years ago forced OPEC to seek additional support to fulfill this-or any other-primary mission, leading to the formation of OPEC+. With Saudi Arabia and Russia at the forefront, OPEC+ was able to maintain significant control over the world's oil markets. But this collaboration underscored a concerning reality: OPEC alone could no longer exert the necessary influence over the oil market.
Even OPEC+'s ability to control the markets was called into question-and not by the UAE, but by Russia, who didn't want to deepen oil production cuts further at the start of the Covid pandemic. While Saudi Arabia pushed for deeper cuts, Russia refused, with the market seeing firsthand what it looks like when OPEC+ members aren't on the same page. Both nations threatened to flood the market with oil, leading to more oversupply and a catastrophic price drop.
It was the first crack, but it wouldn't be the last.
Not all OPEC members were content with their assigned quotas. These quotas are determined by various factors, including the production capacity of individual members, reviewed by OPEC+ and secondary sources. The UAE, in particular, has historically been vocal about its ambitions to increase oil production and has invested in expanding its capacity. Frustrated by its inability to utilize this capacity, the UAE publicly lobbied for an increased production baseline and threatened to leave OPEC if it didn't get it. Although the UAE ultimately denied any plans to exit, it did secure a concession, and its baseline was adjusted.
This episode exposed the divisions within OPEC, raising more questions about its ability to maintain unity and influence the market. The market began to demand tangible proof of OPEC's actions rather than mere rhetoric before prices would respond. The release of substantial volumes of crude oil from the U.S. Strategic Petroleum Reserve (SPR) further complicated OPEC's task of managing market perceptions and prices.
The geopolitical landscape also played a role in OPEC's fortunes. Russia's invasion of Ukraine reintroduced a geopolitical risk premium into the market, temporarily easing OPEC's burden.
But this week, recent rumors that Kazakhstan is seeking to increase its oil production next year have reignited market concerns about OPEC's stability. Although Kazakhstan denied requesting an output hike, the rumors highlight the ongoing challenges OPEC+ faces in maintaining cohesion and credibility.
Iraq has also stated that it has more capacity than OPEC has on its books, and could be the next crack.
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