People walk past an installation depicting barrel of oil with the logo of Organization of the Petroleum Exporting Countries (OPEC) during the COP29 United Nations climate change conference in Baku, Azerbaijan November 19, 2024.
The United States has seen a significant rise in oil production over the past decade, reaching approximately 22.71 million barrels per day in 2024. In contrast, OPEC's production has slightly declined to around 32.39 million barrels per day during the same period. Despite this, OPEC+ now accounts for about 48% of global oil production, down from over 50% a decade ago.
The recent decision to increase output is partly driven by the need to regain market share from U.S. shale producers, who have benefited from technological advancements and cost reductions. However, U.S. shale producers are currently facing challenges due to rising production costs and declining global oil prices. For instance, breakeven costs for shale producers have increased, with many requiring oil prices around $65 per barrel to remain profitable.
In contrast, OPEC+ producers, such as Saudi Arabia and Russia, have significantly lower production costs, estimated at $3–$5 per barrel and $10–$20 per barrel, respectively. This cost advantage positions them to withstand lower oil prices and potentially pressure higher-cost producers.
The decision to boost production also addresses internal compliance issues within OPEC+, with countries like Iraq and Kazakhstan producing above their quotas. By increasing output, OPEC+ aims to enforce discipline among its members and stabilize the market.
While the strategy to increase production may exert pressure on higher-cost producers, it also carries risks. Both Saudi Arabia and Russia require higher oil prices to balance their national budgets, with estimates around $80–$85 per barrel for Saudi Arabia. Sustained low prices could impact their fiscal stability and long-term economic plans.
In summary, OPEC+'s decision to increase oil production is a strategic move to reclaim market share from U.S. shale producers and address internal compliance issues. While this may pressure higher-cost producers, it also poses risks to the fiscal stability of OPEC+ member states if oil prices remain low.
