Reference Message Network reported on May 5 that according to a May 4 report from Nikkei Asia's website, as demand fell due to the global economic slowdown, the "OPEC+" group consisting of OPEC and non-OPEC members such as Russia decided on another significant production increase on the 3rd. Saudi Arabia, which has always emphasized market stability, is gradually abandoning its traditional role in regulating supply and demand, clearly prioritizing its national interests. The post-war oil order may face severe upheaval.

The interested parties held an online meeting on the 3rd and decided to increase production by 411,000 barrels per day in June. The "OPEC+" originally planned to gradually lift production cuts over the 18 months starting in April, but this increase means that "OPEC+" has already made up 44% of the production cut in just three months.

Petroleum is not only a commodity traded in the market, but also a strategic resource supporting national security and industrial foundations with unique significance. Saudi Arabia has maintained the stability of the oil market through its abundant resource reserves, low production costs, and massive excess capacity.

They reduce production when prices fall and increase production when prices rise, aiming to stabilize prices. In the long term, this is also intended to prevent customers from abandoning the use of oil. Whenever demand decreases, Saudi Arabia has usually taken the lead in cutting production beyond its quota.

However, today's Saudi Arabia no longer sacrifices its own interests for the benefit of other countries as it did in the past. This is because the ambitious post-oil era reform plan, Vision 2030, pushed by the hardline Crown Prince Mohammed requires huge funds.

A low oil price also aligns with Saudi Arabia's strategy. High production costs for emerging oil-producing countries and U.S. shale oil companies mean they will be squeezed out of the market if oil prices remain low for a long time. With extremely low oil extraction costs (less than $5 per barrel), Saudi Arabia has the ability to secure remaining benefits in the markets left behind by its competitors.

The Trump administration, which supports increased oil production, also adheres to a policy of putting America first. Previously, the U.S. promised to protect Saudi security, while Saudi Arabia took on the role of coordinator; however, these promises may become nominal in the future.

For the United States, which has completed its shale revolution, the strategic importance of the Middle East has decreased. In 2019, when Saudi Aramco facilities were attacked by missiles and drones, the then-ruling Trump administration did not take retaliatory action. This was a shocking change for Saudi Arabia.

A lack of leadership in the market will bring serious price fluctuations. Oil-producing countries that increase production when prices fall may also reduce supply when prices rise. It is worrying that the smaller oil futures market compared to other financial products may also be manipulated by speculative capital.

The world has witnessed the collapse of the oil order. In 2020, Saudi Arabia and Russia engaged in an "oil price war." The COVID-19 pandemic caused a sharp drop in demand, with West Texas Intermediate crude oil futures prices recording negative values for the first time in history. Overfilled storage facilities forced sellers to pay others to remove oil. Around 2015, the market share battle between Saudi Arabia and shale oil companies triggered a price crash known as the "reverse oil shock."

Oil prices and energy policies are closely related to the national governance of oil-producing countries. Saudi Arabia's production increase leading to low oil prices once became the fuse for the collapse of the Soviet Union. Oil-producing countries such as Iran and Iraq, which have been slow to move away from oil, will face pressing fiscal situations, potentially increasing geopolitical risks in the Middle East. (Translated by Liu Lin)

Original article: https://www.toutiao.com/article/7500909880342135315/

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