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The Saudi-led Organisation of Petroleum Exporting Countries (OPEC) is back on the tried and tested path of increasing output, in coordination with other major non-OPEC oil producers, including Russia in the extended OPEC+, to regain its lost market share. The result has been disastrous in previous such episodes. Could it be any different this time? A billion-dollar question.
On Saturday, July 5, eight leading members of OPEC+, after a virtual meeting, announced an increase in their total output by 548,000 barrels per day (bpd) from August; a higher than anticipated increase.
This increase, equivalent to roughly 0.5 per cent of total global production, was higher than the 411,000 bpd that the group has been adding over the last few months. With the suggested addition of 548,000 bpd from August, OPEC+ is now on track to fully unwind the 2.2 million bpd of cuts by September, a year ahead of schedule. It is now expected that with another output addition in September, OPEC will be able to bring online the entire output it has been withholding from the market.
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OPEC+ has opted to increase output despite soft market conditions, a lowering demand trajectory, and virtually zero geopolitical premium currently on crude market prices. This will add to pressure on markets, and crude prices will eventually feel the heat.
OPEC+ opts to increase output despite soft market conditions, a lowering demand trajectory, and virtually zero geopolitical premium on crude market prices
With supply outstripping demand in the second half of the year, crude oil prices are already in weak territory. Due to the cooling of demand in China and production increases in non-OPEC oil producers, global crude oil inventory grew by 1m bpd during the first half of 2025. S&P Global Commodity Insights said recently that it expects supply to outpace demand by 1.25m bpd in the second half of 2025.
S&P analysts said that prices could fall to a range of $50–60 a barrel later this year and into 2026. S&P also said that West Texas Intermediate, the standard for American crude oil, could fall even below $50 a barrel from its current level of about $66–68 a barrel. Analysts at JPMorgan and Goldman Sachs earlier this year warned that prices could dip below $60 a barrel in Q4.
Yes, the OPEC+ decision coincides with the summer driving season, when gasoline demand is high. This will surely help oil prices from any wild swings in the days to come. Yet it cannot prevent it for long.
Moreover, OPEC+ is ready to take chances. Many in OPEC+, including Saudi Arabia, strongly feel they need to protect their market share. As US shale output continues to rattle markets and outbid major OPEC+ producers, including Saudi Arabia and Russia, while additional flow from Kazakhstan, Guyana, Canada, and other players continues to grow, it is time for OPEC+ to pick up the market share battle, they underline.
Here, geopolitics is also coming into play. By softening the markets through opening their taps, they also appear to be pleasing President Trump, who has made courting Saudi Arabia and regional allies like the United Arab Emirates a priority of his foreign policy, said Stanley Reed in a recent piece for The New York Times.
Yet, this market share battle is seething with challenges. Looking back, one feels that a market share war has helped generate volatility and the collapse of crude markets in the past. This does not suit the single-product economies of OPEC oil producers. In most scenarios, the tactics had backfired and in a big way, and OPEC ultimately had to change course.
Several examples of such course corrections could be cited. During the Covid-19 pandemic, OPEC and Russia went into a market price war in April 2020. As their battle intensified, they opened taps, pushing their output up and up. This resulted in the collapse of the oil markets. Prices moved into negative territory, which was unheard of until then.
To protect the US shale industry from the effects of this market collapse, President Trump, then in his first tenure, had to move in firmly and assert himself to engineer a ceasefire between Riyadh and Moscow, forcing them to lower their respective outputs. Sanity ultimately prevailed, and both backed off. The result of this price war between the two oil market heavyweights was disastrous for both.
Further back in November 2014, OPEC opted to open taps as it became fed up with the unleashing of the shale revolution. Using its considerably lower output cost against the higher per-barrel cost of competition from shale producers, OPEC strove to squeeze them out of the market to regain some lost market share. Gaining market share was the OPEC mantra at the time. Highest-cost producers, OPEC argued then, should be the ones to cut output, not them, they stressed.
The result of this market share battle, spanning from 2014 to 2016, turned out to be disastrous. Prices dropped into the $30 range. The 70pc price drop during that period was one of the three largest declines since World War II and the longest-lasting since the supply-driven collapse of 1986, said a World Bank report. Consequently, well-respected, veteran, octogenarian Saudi oil minister Ali Al-Naimi had to lose his job.
The same was the story in the mid-80s, when Saudi Arabia opted to open taps, some say in collusion with the late US President Ronald Reagan, carbon copy, as a tactic to squeeze the inflow of petrodollars into the humble coffers of the then Soviet Union. The US and the Soviet Union were then involved in a war in Afghanistan. Prices bottomed out then, too. History proves this time, too, it may be no different.
Published in Dawn, The Business and Finance Weekly, July 14th, 2025