The Great Game – Betrayal from the inside threatens OPEC solidarity
On Sunday, OPEC+ announced that the bloc would extend April’s voluntary oil cuts through to the end of 2024. In addition, Saudi Arabia said that they would unilaterally cut production with 1,000,000 barrels per day in July with possibility of extension.
Safe to say, the oil cartel is struggling to speak with one voice. What was once an OPEC ‘foot’ on the global crude market has turned into a Saudi ‘toe’. The world’s biggest oil producer can’t be happy with its current inability to enforce its will in the bloc. The lack of discipline in OPEC+ is threatening Saudi’s control of prices, but how can they inspire discipline among members when one state is consistently undermining the efforts of the rest?
As we covered in a previous edition of the Great Game, Saudi Arabia is positioning themselves as the regional hegemon in the Middle East – free to make decisions that serve its own interests isolated from the U.S. The OPEC+ forum has been the primary tool to do so. Prince Abdulaziz bin Salman has made it clear that the Saudi goal is to control the market, however, in a year where several OPEC+ members have failed to meet their quotas, and the US has offset price surges using the Strategic Petroleum Reserve, production cuts haven’t been as efficient as the Saudis would have liked. Surprise cuts of 2 million b/d in October and 1.16 million b/d in April failed to deliver more than a short-term rally.
But Saudi leadership is dead-set on crushing bearish speculation which they believe doesn’t match the fundamentals – And they are right; the estimated demand for oil vis-a-vis quotas doesn’t support a bear market. At least not on paper.
Why then – even after successive cuts – does the crude price keep settling on a $70 barrel? The conundrum has pitted the OPEC+ alliance against each other. Suspicious eyes are turning away from outside foes, and are now looking inwards, trying to sniff out the mole who is free-riding on the collective. The whole thing reads like a very mediocre survival TV-show.