In a bold move, Saudi Arabia has decided to increase its oil production despite the potential for a global oversupply. This comes at a time when other major oil-producing nations are treading cautiously. While this decision has sent shockwaves through oil markets, leading to a drop in the stock prices of oil companies, the Kingdom’s strategy appears to be driven by long-term considerations rather than short-term price fluctuations.
Saudi Arabia, as a leading member of the Organisation of the Petroleum Exporting Countries (OPEC), has historically wielded significant influence over global oil prices through coordinated production cuts and increases. OPEC, currently comprising 13 nations including Saudi Arabia, Iraq, and Venezuela, has often worked to stabilise markets. In recent years, OPEC has expanded its collaboration with non-member producers like Russia, under the OPEC+ alliance.
The larger group, which includes players like Mexico and Kazakhstan, has sought to balance oil markets by adjusting output during times of crisis like the Covid. Saudi Arabia’s decision to boost production, however, marks a potential shift in its approach within this framework.
By ramping up production, Saudi Arabia seems willing to endure lower prices for the short term. Reports indicate that the ramp up could add about 1,80,000 barrels per day (bpd) of extra crude oil supply each month. This is expected to loosen the global oil balance and lead to stock builds in 2025 and keep prices under moderate pressure.
The strategy may aim to maintain or increase its market share by undercutting higher-cost producers. This could be significant as many nations shift toward renewable energy sources and reduce reliance on fossil fuels. Flooding the market with cheaper oil could push out smaller producers and ensure Saudi Arabia’s dominance when demand stabilises.
Crude oil prices have fluctuated significantly in recent months, with prices reaching $90–$95 per barrel in late 2023 due to OPEC+ production cuts. However, with Saudi Arabia’s new production strategy, prices could drop further in the coming months. This would hurt oil-producing economies, but bring significant relief to oil-importing nations like India, Japan, and many in Europe. Lower energy costs would help ease inflationary pressures, reduce production costs, and stimulate economic activity.
In the short term, oil and gas companies may experience a hit to their stock prices. Yet, in the long term, Saudi Arabia’s gamble could reshape the global oil market, benefiting economies that rely on lower energy prices while reinforcing the Kingdom’s role as a dominant force in the energy landscape.
