(Bloomberg) – For most of this decade, the OPEC+ alliance has been the world’s most stalwart defender of high oil prices. In just a few moments this week, that role reversed dramatically.
In a video conference on Thursday, the coalition of crude producers led by Saudi Arabia and Russia was expected to simply remind errant members to respect their output limits, ahead of rubber stamping its existing plan to gradually raise production.
Instead they delivered a major shock — increasing supply by three times the planned amount in May in what delegates described as a deliberate effort to drive down prices to punish the group’s cheats.
After many months of excess production from Kazakhstan and Iraq, Saudi Energy Minister Prince Abdulaziz bin Salman reached the limit of his patience, delegates said, asking not to be identified because the talks were private. The larger-than-expected May output hike would just be an “aperitif” if those countries didn’t improve their performance, the prince said on the call.
Prince Abdulaziz’s gambit — a marked break from years of urging OPEC+ to remain cautious in adding supplies — illustrates the toll taken on the alliance as its effort to balance global oil markets drags on far longer than initially envisioned. For some observers, it stirs echoes of the price war that briefly erupted between OPEC+’s leaders during the 2020 pandemic.
Crude was already reeling from the onslaught of trade tariffs announced by U.S. President Donald Trump the previous day, and the surprise addition of 411,000 barrels a day by OPEC+ in May turbo-charged the rout. Brent futures sank as much as 7.3%, the most in two years, to below $70 a barrel.
The timing of the announcement by the Organization of the Petroleum Exporting Countries and its allies seemed unlikely to be a coincidence, and group delegates and crude traders alike speculated that Riyadh deliberately sought to maximize the bearish effect.
Astana has infuriated Riyadh by ramping up output at a new project to expand its giant Tengiz oil field, in partnership with international majors like Chevron Corp. Even as the country pledged to conform better with its OPEC+ limits, in February its output was a hefty 300,000 bpd above target.
Iraq, another habitual quota cheat, has reduced output closer in line with its quota in recent months, but has shown little sign of making the compensation cuts it promised to atone for past over-production.
While delegates said they were surprised at the outcome of what was supposed to be a routine conference call, they were supportive of measures to end cheating and everyone backed the proposal from Saudi Arabia and Russia to make a larger supply hike in May.
“This is about coaxing Kazakhstan and Iraq to improve their compliance in a balanced way,” said Bob McNally, president and founder of Rapidan Energy Advisers LLC and a former White House energy official.
