Is Another Oil Bust on the Horizon?

After several years of relative stability in global crude oil markets, speculation is rising that strategic shifts from Saudi Arabia, OPEC, and OPEC+ could presage another period of higher market volatility in the months to come. If it happens, the good times enjoyed by US shale producers since the COVID pandemic could come to a quick end.

OPEC and OPEC+ - a combination of OPEC members, Russia, and other non-OPEC producing countries – have successfully defended crude prices in recent years. But the ability of these cartels to support a target price floor has diminished during 2024 as more and more oil volumes have entered the market from places like the United States, offshore West Africa, and Guyana.

Saudi Arabia, as a cornerstone member and the cartel’s biggest producer, often sets the tone for OPEC's production strategy. In recent weeks, Saudi Arabia has signaled a notable shift in its oil policy. Traditionally, the kingdom maintained an unofficial target of $100 per barrel, aiming to balance high revenue with market stability. However, faced with market dynamics, including lower demand forecasts and pressure from other OPEC members, Saudi Arabia has now indicated a readiness to abandon this price target. This decision was prompted by the desire to regain market share, even at the expense of lower oil prices. This strategic pivot became evident recently as Saudi Arabia prepared to increase oil output, aligning with broader OPEC+ decisions to gradually unwind some production cuts starting in December 2024.