Opec+ navigates oil market challenges amid US pressure and internal disputes

[WORLD] Oil prices remain subdued at around US$60 a barrel, yet the Organisation of the Petroleum Exporting Countries and its allies (Opec+) are expected to press ahead with increased production this week. The move comes amid pressure from U.S. President Donald Trump and mounting frustration from group leader Saudi Arabia towards members flouting agreed output quotas.

In recent months, Saudi Arabia, Russia, and six other key Opec+ nations have startled markets by announcing substantial production increases for May and June, despite weak pricing. The alliance, comprising 22 oil-dependent countries, has historically capitalised on supply restrictions to prop up prices, holding back millions of barrels from the market.

However, this strategy faces growing complications. The global energy landscape has shifted, with emerging economies such as China and India altering demand dynamics, while the broader transition to renewables continues to gather pace. These developments are adding fresh layers of complexity to Opec+ deliberations.

The group is scheduled to hold two meetings this week: a virtual assembly tomorrow involving all member states to align on overall strategy, followed by a more exclusive gathering on Sunday with the so-called “V8” — the eight countries that have shouldered the largest production cuts in recent years.

“What’s most interesting is the V8 decision,” said UBS analyst Giovanni Staunovo, referring to the Sunday meeting that will determine output levels for July.

Analysts anticipate the V8 will greenlight a production increase of 411,000 barrels per day for July — matching the levels set for May and June — despite earlier plans for a more modest hike of 137,000 barrels. This move risks further depressing prices already at their lowest since the COVID-19 pandemic, a period that severely weakened global demand.

The timing of this production ramp-up is notable. While parts of the global economy are rebounding, others continue to lag, painting a fragmented picture for oil consumption. The International Energy Agency (IEA) has cautioned that without a nuanced approach, Opec+ may risk tipping the market into oversupply.

Nonetheless, the alliance has defended its position by pointing to "healthy market fundamentals," citing low inventory levels as justification. But some observers remain doubtful, especially in light of global demand uncertainty exacerbated by trade tensions sparked by President Trump.

Since the end of 2022, the group had significantly curtailed output, with Saudi Arabia, Russia, and six others withholding 2.2 million barrels per day. While some of that supply was slated for a gradual return in early 2025, the pace has quickened substantially.

Saudi Arabia’s decision to ramp up production also serves as a warning to members failing to comply with agreed cuts. By increasing supply, Riyadh reduces the profitability of overproduction for non-compliant members, tightening the screws on internal discipline.

Maintaining group cohesion remains critical. Opec+’s effectiveness hinges on its ability to enforce quotas, but persistent violations strain internal trust and diminish the group’s influence over market prices.

"Some of these violations stem from producers seeking to monetise investments," noted Lawrence Haar, associate professor at the University of Brighton.

Kazakhstan has emerged as the most prominent violator, primarily due to increased output from the Chevron-operated Tengiz field, according to Francis Perrin, senior fellow at the Institute for International and Strategic Relations. Other producers like Iraq and the UAE have also exceeded their targets, but Saudi pressure has focused squarely on Astana.

“Kazakhstan continues to overproduce massively above its Opec+ quota, and Saudi cannot walk back on its threats of punishing the cheaters without losing credibility,” analysts at DNB Carnegie said.

Beyond internal discord, analysts believe recent Opec+ moves cannot be fully understood without factoring in external pressure from Washington. President Trump, aiming to curb inflation at home, has repeatedly called for lower oil prices. In January, he publicly urged Saudi Arabia and other producers to increase output to ease consumer costs.

Although Trump avoided direct mention of the issue during his recent Gulf tour, observers suggest his administration is satisfied with Opec+’s current course.

Meanwhile, Opec+ is also closely monitoring negotiations between the U.S. and Iran over Tehran’s nuclear programme. A breakthrough could lift sanctions and bring Iranian oil back onto the global market — further complicating the supply landscape.

Persistently low oil prices also threaten Saudi Arabia’s fiscal ambitions. As the world’s top crude exporter, the kingdom relies heavily on oil revenue to fund its sweeping economic diversification agenda. “The Saudi Arabian economy depends on oil,” said Carole Nakhle, an economist at the Surrey Energy Economics Centre.