Saudi Arabia’s New Oil Play – Embracing the Glut to Win the Long Game

Oil markets faced a setback over the weekend with OPEC+ announcing an unexpected increase in output for June during a virtual meeting. The top producers in the group, Saudi Arabia and Russia, revealed a 411,000 barrels per day (bpd) boost, which is nearly three times higher than the initial plan. This move signifies a shift in strategy from defending prices to saturating the market.

Initially seen as a response to quota violations by countries such as Kazakhstan and Iraq, Saudi Arabia’s decision to allow prices to discipline overproducers rather than enforcing quotas could indicate a broader change in its oil market approach. The Kingdom, which relies on oil prices above $90 to balance its budget, is taking a bold – some may say reckless – step that could lead to long-term benefits by reclaiming market share and pressuring high-cost producers like U.S. shale.

As oil prices fall and market dynamics shift, financial institutions like Standard Chartered, Goldman Sachs, and JPMorgan have revised their forecasts downwards, pointing to escalating trade tensions and OPEC’s strategic pivot as contributing factors. Saudi Arabia’s proactive stance is not just a reaction but a strategic move to secure a stronger position in the market, potentially reshaping the industry for years to come.