Opec+, Saudis have no target oil price: sources

Neither Saudi Arabia nor the wider Opec+ group have any specific target for oil prices, and no member of the producers' alliance is about to abandon output discipline in favour of chasing market share, multiple Opec+ sources have told Argus.

Oil prices fell earlier on Thursday following unconfirmed press reports that Saudi Arabia may be willing to tolerate lower oil prices as part of a plan to increase crude output to regain market share.

Sources within Opec+ have since dismissed those assertions outright, insisting that the basis for the group's collective decision-making will always be market fundamentals, and in particular the five-year average of crude inventories, rather than targeting any particular oil price.

"Neither Opec+, Opec nor the Saudis have any price target, let alone $100/bl," one source said, in response to a Financial Times report that stated Saudi Arabia is ready to "abandon its unofficial price target of $100/bl".

A second source said the $100/bl figure being reported is not a target but is more likely to refer to a recent estimate issued by banks and other financial institutions of Saudi Arabia's "so-called break-even oil price" — that is, the price the kingdom needs to cover its spending plans.

In April, the IMF estimated Saudi Arabia's breakeven oil price at $96.20 for 2024, almost 20pc above the previous year and around a third higher than current Ice Brent futures.

"The breakeven is, at best, indicative, but does not tell the full story," the source said. Focusing on it "is totally devoid of the idea that a government has a host of other tools to manage an economy — issuing bonds, borrowing, adjusting one's budget".

Eight Opec+ producers, led by Saudi Arabia and Russia, were due to begin a phased return of around 2.2mn b/d of "voluntary" output cuts from the start of next month. But mounting concerns over the strength of the global economy, and in turn oil demand, prompted the group to defer the plan by two months to December.

With worries around oil demand not going away, and the market looking likely to flip into a surplus from the start of next year, some observers are questioning whether there will be any need for an increase in Opec+ supply from December. And if the eight members go ahead with unwinding the cuts regardless, whether that would signal a shift in the group's focus to chasing market share. But a third source rejected that view, as the group would "only be reversing what we have cut".

"As a group, we have said time and time again that these cuts were both voluntary and temporary, and always stressed that they could be paused or reversed," the source said. "And earlier this month, that's exactly what we did with the two-month deferral to December."

December or bust?

The rationale to delay the increase in production to December was twofold, according to Opec+ sources. It not only reflected the uncertainty around the global economy, the US and Chinese economies, interest rates and demand. But more importantly, the decision was made to allow Opec+ members that have overproduced this year ꟷ namely Iraq, Kazakhstan and Russia ꟷ more time to show they are serious about compensating for exceeding their output targets.

"There is so much uncertainty today which we, as Opec+, have no control over," one of the sources said. "But what we do control is our own affairs."

Iraq and Kazakhstan have been under intense pressure in recent months to not only adhere to their pledged targets, but also compensate for past overproduction. While Kazakhstan did manage to produce below its target in August, Iraq continued to struggle. All eyes will be on how these countries do in September.

"The overproduction is impacting our credibility, and we need to tackle that. Discipline is paramount," the source said.

Reports that Saudi Arabia is committed to start unwinding cuts from December, come what may, are wide of the mark for several reasons, another source said. "First, this is not a decision for Saudi Arabia to make. It is for all eight to decide," he said. The group also still has several weeks before it has to decide whether to proceed with the plan, or defer again, the source added.

A decision is due in the first week of November, by which time the group should have better visibility on market fundamentals and Iraqi and Kazakh compensation efforts. "How could we make a decision now when we don't even have September production figures?" the source said.

By Nader Itayim