The monthly OPEC+ ministerial meeting is expected to be held on the first day of June, and most likely, in line with Saudi Arabia’s declared objective to phase out its voluntary production cuts, a proposed supply increase of 411,000 barrels per day will be discussed. Over the past five years, OPEC+ has voluntarily withheld nearly 5.8 million barrels per day from the market to balance global oil supply and neutralize the impact of surging U.S. shale output.
The West Texas Intermediate (WTI) benchmark price currently hovers around $60 per barrel. This is below the estimated breakeven price of $61–$62 per barrel for new wells in the Permian Basin, which is virtually the sole source of additional U.S. crude oil supply. In comparison, production costs are estimated at $3–$5 per barrel for Saudi Arabia and $10–$20 for Russia.
OPEC+ is now seeking to reclaim the market share it has ceded in recent years to U.S. shale producers. The United States currently accounts for 22% of global oil production, up from 15% a decade ago, while the shares of Russia and Saudi Arabia have both declined to around 10% over the same period. Specifically, Saudi Arabia’s push to raise production appears to be partly influenced by Kazakhstan and Iraq’s non-compliance with agreed production quotas.
Russia is currently constrained by the $60 price cap imposed by Western powers, while Saudi officials have reported that the Kingdom can endure a $60 oil price for a considerable period. Preliminary estimates suggest that the recent price decline has created serious challenges for shale producers and diminished the outlook for expansion and increased market share. However, some analysts warn that given the depletion of high-yield, high-quality reserves in the Permian, a coordinated, surprise supply increase by U.S. shale producers in response to OPEC+ is not out of the question.
It’s important to note that the ongoing oil price battle is deeply intertwined with fiscal balance, especially for OPEC+ leaders like Russia and Saudi Arabia. According to IMF estimates, Russia requires an oil price of $77 per barrel to balance its budget, while Saudi Arabia needs around $90 per barrel.
A new supply battle may be brewing, Is Iran involved?
