Saudi Arabia threatens to open the valve: what is the danger of disobedience in OPEC+?

The price of oil has risen to almost $ 75 per barrel due to Iran's missile strike on Israel. But it may also return to its previous position around $ 71. Due to such a low price, OPEC+ countries postponed the increase in production for two months. At the same time, Saudi Arabia threatened its partners to collapse oil prices by opening the valve if they do not adhere to quotas. Some countries do not fulfill their obligations, which also affects the world quotes of raw materials. For Russia, such a move by Riyadh does not bode well, experts believe.

If the OPEC+ countries do not fulfill their obligations to produce oil, then the price of oil may fall to $ 50 per barrel. According to The Wall Street Journal, such a warning to partners was made by the Minister of Energy of Saudi Arabia, Prince Abdel Aziz bin Salman.

The interlocutor of the publication said that the participants of the teleconference perceived the prince's words as a threat to unleash a price war by sharply increasing Saudi Arabia's oil.

Separately, Abdel Aziz bin Salman focused on Iraq and Kazakhstan, which do not fulfill their quotas and do not compensate for overproduction, a source told The Wall Street Journal.

In September, oil prices fell to $71 per barrel, the lowest since November 2021. On the one hand, the market does not expect a big increase in demand from the largest consumers in the USA and China. On the other hand, even the decision of OPEC+ to postpone the start of the production increase to December did not play a special role, since the members of the deal themselves violate quotas and supply more oil to the market.

The International Energy Agency estimated that excess volumes, for example, in May amounted to 630 thousand barrels per day — 16% of all announced reductions. The UAE was named the largest violator. Their production amounted to 3.25 million barrels per day — 340 thousand barrels more. Iraq followed — 280 thousand barrels more. Also completely did not adhere to quotas in Saudi Arabia and Russia. According to the IEA, by 50 thousand barrels per day and 170 thousand barrels per day, respectively. All participants promised to compensate for overproduction, but not all do it.

Igor Yushkov, a leading analyst at FNEB and an expert at the Financial University under the Government of Russia, notes that there are problems with discipline in OPEC+, and Saudi Arabia is constantly struggling with them. The expert cited the example of Russia, where the government cannot influence companies and everything is going the way of a gentleman's agreement.

"If OPEC+ collapses, then everyone will produce to the maximum and an oversupply will form. As a result, all countries will suffer, since at the moment the oil price may drop below $ 50 per barrel," Igor Yushkov noted.

Rystad Energy estimated that onshore fields in the Middle East are the most attractive at cost. The average break-even price of new projects is $27 per barrel. Offshore fields were estimated at $ 37 per barrel, deep—sea fisheries at $43, and North American shale at $45. Rosstat estimated the cost of oil production in the country in 2023 at about 23.6 thousand rubles per ton ($ 30 per barrel) excluding taxes.

The leading analyst of the FNEB notes that the implementation of the threat to Saudi Arabia will be an unpleasant surprise for the Russian government.

"Our budget for 2025 includes a price of about $ 69. At the same time, there is a discount on the Russian Urals variety, which is indicated in the budget, which today is approximately $ 8-10. Therefore, if world prices fall to $ 50, then our oil will cost about $ 40. If we do not receive enough funds from oil exports, we will have to raise the national debt, spend the National Welfare Fund more rapidly and eventually reduce budget expenditures, up to social and defense," Igor Yushkov added.

Today, on October 2, Deputy Prime Minister Alexander Novak held the 56th meeting of the joint ministerial monitoring Committee of the OPEC+ countries. According to the Ministry of Energy of Russia, Iran, Kazakhstan and Russia confirmed the achievement of full compliance with the requirements for compensation of excess production in August in accordance with the schedules provided to the OPEC secretariat for September.

"In the future, the countries confirmed their readiness to maintain full compliance with the requirements of the OPEC+ deal," the ministry said.