The continued concerns over oil prices

• The Organization of the Petroleum Exporting Countries Plus (OPEC+) has decided to increase crude production for the third consecutive month, despite the oil market being oversupplied.

• The increase, which was less than half of global daily production, led to a 2% drop in Brent crude price to $60.23/barrel, the lowest since the pandemic.

• The oil market is still struggling, and crude price is not near the triple dollar mark OPEC+ aimed for.

• OPEC+ took a collective production cut of five million bpd, nearly 10% of its total pre-pandemic output.

• A further “voluntary” cut of 2.2 million bpd was taken by eight members, but this did not raise oil prices.

• Saudi Arabia, OPEC+’s largest producer, took nearly three million bpd or 40% of the total production cuts, becoming increasingly infuriated by endemic OPEC+ overproducers.

• Saudi Arabia has previously pursued a market share chasing strategy to punish perceived overproducers, allowing prices to return to Riyadh’s desired levels.

• When Saudi Arabia’s average production fell below nine million bpd in 2024, its lowest level since 2011, it decided to repeat the playbook: an oil price war in the guise of accelerated restoration of voluntary production cuts.

Saudi Arabia’s Oil War: Economic and Political Factors

• The Saudi oil war is viewed as a result of fragmentation in the market, with freelancing producers and U.S. sanctions on major oil producers.

• The International Energy Agency (IEA) predicts global oil demand to plateau in 2025, with a growth rate of only 0.73%.

• The global economic slowdown, growing popularity of non-internal combustion engine vehicles, and climate change mitigation are signs of this trend.

• The U.S. President Trump’s tariff war has further disrupted global trade, with S&P Global lowering its global GDP forecasts to 2.2% for 2025 and 2.4% for 2026.

• The World Trade Organization predicts a 0.2% annual decline in world trade in 2025 unless other influences intervene.

• The Saudis may be trying to maximize their oil revenue, position themselves at the lower end of the oil price spectrum, and gain from President Trump’s state visit.

• The low-intensity oil war is more consequential for India, the world’s third-largest crude importer, with a one-dollar decline in oil price yielding an annual saving of roughly $1.5 billion.

• Lower oil revenue impacts the economic interests of oil exporters, refinery margins, and the pro rata tax revenues of the Gulf economies.

• The lower synergy may become the “new normal” across the Arabian Sea unless a new set of drivers replace hydrocarbons.