Reducing production fears losing market, increasing production fears oil price collapse. OPEC+ falls into an unsolvable "deadlock"?

At present, OPEC and its allies are facing a difficult dilemma: whether to start relaxing oil production limits, even though the oil supply and demand situation is unlikely to improve in the short term. They are likely to choose to delay the key decision once again to maintain price stability, but doing so also increasingly risks losing market control. It is understood that OPEC+ plans to gradually start easing deep production cuts that have been in place for years starting in April. Since 2022, the alliance has collectively cut production by 5.85 million barrels per day, about 5.7% of global demand, to support the market. Due to weak global oil demand and ongoing supply growth, OPEC+ has postponed the 2.2 million barrels per day production increase plan five times (originally scheduled to be implemented in the first quarter of 2024). Unfortunately for OPEC, the market environment is unlikely to significantly improve by April. In fact, as tensions between the US and other major economies put pressure on oil demand growth, the situation may worsen. US President Trump has been urging the actual leaders of OPEC, particularly Saudi Arabia, to lower oil prices. Additionally, Trump's dialogue with Russian President Putin and the subsequent US-Russia bilateral talks in Saudi Arabia have sparked speculation about a possible ceasefire in Ukraine and a possible relaxation of US sanctions on Russia's large-scale oil production. Discipline In recent years, OPEC+ has been very effective in maintaining relative stability in the oil market, primarily due to the discipline of its member countries. Since 2021, the Brent crude oil price has remained within the range of $70 to $100 per barrel (excluding fluctuations in the months following the outbreak of the Russia-Ukraine conflict). However, due to limiting a significant amount of production capacity, OPEC's market share - and its ability to continue controlling the market - has steadily declined as non-member producers increase output. This includes shale oil producers in Texas and New Mexico in the US, where production has soared in recent years, making the US the world's largest oil producer. The US Energy Information Administration (EIA) slightly raised its forecast for US oil production to a record 13.6 million barrels per day by 2025 this month. While the pace of growth has slowed, production is expected to remain steady in the coming years. EIA forecasts that global oil production will increase by 1.6 million barrels per day by 2025, mainly driven by countries outside of OPEC+ (including the US, Canada, Brazil, and Guyana). Meanwhile, tensions within the OPEC+ alliance are escalating. The giant Tengiz oil field in Kazakhstan, operated by Chevron Corporation (CVX.US), is expected to reach a production of 260,000 barrels per day by the end of February, four months ahead of schedule, as part of its $48 billion expansion project, which will bring its total production to 1 million barrels per day. To meet its production target, this Central Asian country will have to significantly deepen its production cuts, losing much-needed revenue. Nigeria has increased production in recent months, and oil exports from the semi-autonomous Kurdistan region of Iraq may soon resume after a two-year dispute. Saudi Arabia's close ally, the United Arab Emirates, has also increased its production capacity after years of significant investment. The Gulf country's capacity has reached nearly 5 million barrels per day, while the current official production level is 3.2 million barrels per day. Quotas will increase by another 300,000 barrels per day this year. Dilemma According to data from the International Energy Agency (IEA), supply growth in 2025 will exceed global oil demand, with global oil demand expected to increase by 1.1 million barrels per day after increasing by 870,000 barrels per day in the previous year. The trend of global oil inventories is more optimistic for OPEC, but only slightly positive. If production does indeed exceed demand, inventories are expected to start rising this year, and more supply from OPEC+ will only accelerate this accumulation. Therefore, OPEC+ is facing a dilemma. Further delaying the removal of production cuts has limited upside, as a significant amount of idle oil capacity has helped maintain price stability by providing a buffer to the market. Limiting production for producers within the group will increase economic pressure. Continuing to postpone production increases may anger Trump. On the other hand, increasing production in a well-supplied market could lead to a sharp drop in oil prices. Therefore, while OPEC+ is likely to decide to postpone production increases once again, this choice will have consequences as the production country group may see its reputation and market share further eroded.