Greg Priddy
OPEC+ decided on December 5 to kick the can down the road yet again, postponing the timeframe for putting additional barrels back into the market until April 2025 and slowing the pace of the notional tapering so that the cuts will not unwind until the end of 2026. This avoids immediate financial pain for producers but does not offer a way out of the dilemma of producing well below capacity while the competing supply continues to grow. In fact, it is becoming increasingly clear that Saudi Arabia will eventually have to retake market share despite lower prices, and it might have reasons to do so more abruptly than the OPEC+ plan suggests.
Producing at around 9 million barrels per day (bpd) with nearly 3 million bpd of spare capacity is clearly not the long-term revenue maximizing path for Riyadh if competing production is just going to continue to take away market share, even though it is probably in the short-term. That is true even when one looks at it in terms of the net present value of the future stream of revenue, discounting the long-term future accordingly. However, this would be a major climbdown for Crown Prince Mohammed bin Salman. Shifting the kingdom toward a more “price hawkish” policy is one of his signature initiatives. Hence, the repeated delays from OPEC+, in which it wields disproportionate influence, in moving to retake market share.
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