JEDEDIAH: Saudi Arabia’s recent indications of a potential increase in oil production and market share have sent global oil futures plummeting more than 3 per cent, with the West Texas Intermediate crude futures falling to their lowest levels since March 2021.
The kingdom’s strategic pivot from supporting oil prices to embracing lower prices suggests a willingness to endure fiscal strain in pursuit of reclaiming market dominance.
Brent crude has now dipped below $65 per barrel, raising concerns of a price war reminiscent of the tumultuous periods in 2014 and 2020.
The shift in strategy comes against a backdrop of rising frustration within the kingdom regarding compliance among the OPEC+ members. Reports indicate that Saudi officials are increasingly discontented with countries such as Kazakhstan and Iraq for exceeding their production quotas, undermining the collective efforts to stabilise the market.
Saudi officials did brief allies that it could withstand prolonged oil prices by increasing borrowing and cutting costs. This marks a significant policy shift, as the kingdom usually prefers price stability to support its oil-dependent economy.
The policy shift targets OPEC+ members exceeding production quotas while countering non-OPEN influences, particularly the US shale, which has reduced OPEN+ market share to about 48 per cent.
By increasing output, the Mideastern nation seeks to pressurise the higher-cost producers/
Saudi Arabia does face fiscal hurdles as it ploughs ahead with its Vision 2030 initiative, aimed at reducing oil dependency. Oil revenue still makes up majority of the nation’s revenue.
While Saudi Arabia navigates its new policy, there is risk of a prolonged price war that will destabilise its own economy and affect allies.
