“There is no peak in oil demand on the horizon,” the head of OPEC, Haitham al Ghais, said last month in Canada. Demand will continue to increase as global population grows, he added. And OPEC will be there to respond with what supply is necessary. OPEC is now playing the long game.
Fast-forward a month and Reuters is reporting on “signs of strong demand more than offset the impact of a higher-than-expected OPEC+ output hike for August”, not to mention now chronic worry about Trump’s tariffs. In fact, after OPEC+ announced the bigger than expected supply boost, prices rose, not least because not everyone boosting supply was boosting it fast enough.
When OPEC+ first said they were going to start unwinding their production cuts, agreed back in 2022, reactions were varied. Some argued it was all about trying to kill U.S. shale again. Others said the Saudis, the biggest cutter, simply had no other choice any longer after the cuts failed to produce significantly higher prices. Yet others claimed OPEC in general and Saudi Arabia specifically are trying to please Trump—by hurting some of his biggest donors. OPEC itself has not endorsed any of these versions of events.
The fact remains that OPEC is reversing the cuts, boosting oil supply—but prices are not tanking as so many prominent energy analysts said they would, and are still saying they would, later this year. Of course, this is because of factors unrelated to OPEC, namely geopolitical developments such as U.S.-Chinese trade talks and Canadian wildfires, as well as yet more EU sanctions against Russia. But OPEC certainly wouldn’t mind these factors supporting prices, if not more U.S. rig additions.
OPEC is playing for market share. This is one of the most popular explanations for the group’s latest moves among analysts. After curbing production for a couple of years and surrendering market share in the process, now some of the world’s biggest producers want this market share back. This is going to take a while. Bank of America’s head of commodities research, Francisco Blanch called it a “long and shallow” price war.
“It’s not a price war that is going to be short and steep; rather it’s going to be a price war that is long and shallow,” Blanch told Bloomberg a month ago. He went on to say the target, especially for the Saudis, is U.S. shale, which has become more resilient in recent years but is still vulnerable to lower oil prices because of its higher costs.
There is also another aspect to the change in OPEC approach, as detailed by Kpler’s Amena Bakr. It’s about group cohesion, Bakr wrote in an analysis for The National. With so much non-compliance with the cuts, those that were compliant needed to have their concerns addressed, too. “To restore a sense of fairness, an orderly plan to return the barrels gradually was needed to avoid a free-for-all situation that would drown the market in supply,” Bakr explained.
