Despite the United States issuing strong threats against Iran, which has pushed international oil prices to around $70 per barrel, OPEC+ is currently still inclined to adhere to its established plan and maintain existing supply restrictions. Multiple delegates indicated that the alliance is expected to confirm at an online meeting this Sunday its decision to continue the "pause on further production increases" for the first quarter into March. It is understood that eight OPEC+ member countries, led by Saudi Arabia and Russia, will hold a meeting on Sunday to review production policy for March. March is the final month of the first-quarter production increase pause plan previously set by the alliance. Three delegates reiterated on Thursday that OPEC+ is currently expected to approve an extension of the existing strategy, although one delegate noted that the alliance might be forced to adjust its stance if a major supply disruption occurs.
Notably, this week's rise in oil prices has not significantly altered OPEC+'s cautious stance. The price of Brent crude in London rose to $70.35 per barrel on Thursday, its highest level since last September. This market rally is primarily driven by geopolitical risks, as U.S. President Trump warned Iran that it must reach a new arrangement on the nuclear deal or potentially face military action. Analysts point out that OPEC+ typically does not quickly adjust its supply policy in response to geopolitical tensions, preferring instead to wait until actual supply is affected before taking action.
Looking back at previous policy, the eight OPEC+ countries had rapidly restored some production last year, aiming to recapture global market share. However, as fuel consumption entered a seasonal lull, the alliance decided in November last year to pause further production increases in the first quarter of this year to avoid exacerbating supply-demand imbalances. This decision has, to some extent, been validated by the market. Although many institutions still anticipate a potential supply surplus in the global crude market, the turmoil in Iran and supply disruptions in Kazakhstan, an alliance member, have provided support for oil prices.
Nevertheless, a more uncertain decision will emerge at the next meeting in early March. At that time, OPEC+ must decide whether to resume production increases after the first-quarter pause concludes or adopt a more cautious supply management strategy. Data shows that major OPEC+ members still theoretically have approximately 1.2 million barrels per day of production capacity that has been shut in since 2023, awaiting gradual restoration. However, the alliance's failure to fully deliver on its promised production increases last year has also raised market questions about the actual scale of remaining restorable capacity.
Countries such as Saudi Arabia and the United Arab Emirates have recently signaled a willingness to continue raising production. Delegates stated that last year's unexpected decision to restore production was partly aimed at recapturing market share eroded by competitors like U.S. shale oil producers. However, the feasibility of further increases remains debated. The International Energy Agency (IEA) forecasts that, with demand growth slowing and supplies from non-OPEC producers like the United States, Brazil, Canada, and Guyana continuing to expand, the global crude market could face a record supply surplus.
Institutions such as JPMorgan Chase and Morgan Stanley even suggest that to prevent oil prices from falling again amid a potential surplus, OPEC+ might need to consider new production cuts rather than continuing to restore output. Last year's 18% cumulative decline in oil prices has already impacted the finances of several OPEC+ member countries. The Saudi capital, Riyadh, has been forced to cut spending on some flagship projects and seek other financing channels to cover budget shortfalls, making price stability even more crucial for alliance members.
Comments