Saudi could flood market with cheap oil to edge out US despite OPEC cuts pledge

Saudi could flood market with cheap oil to edge out US despite OPEC cuts pledge
OPEC+ announced production cuts to shore up flagging prices but Saudi Arabia might be quietly planning to flood the market with cheap oil, according to energy experts.
2 min read
04 December, 2023
Saudi Arabia and the UAE are both expected to increase oil production [Getty]

Saudi Arabia could be quietly planning to flood the market with cheap oil to target US energy companies, experts believe, despite the OPEC+ announcement last week of production cuts to lift flagging prices.

The kingdom has been slashing output to stabilise prices but could now pump out an extra 2.5 million barrels a day, Paul Sankey from Sankey Research recently told CNBC, despite commitments to OPEC+ to cut production.

Saudi Arabia and Russia agreed to cut oil production last week by 1 million barrels and 500,000 barrels per day respectively.

But Sankey believes that Riyadh could quietly ramp up its output by 2.5 million barrels to target US and Brazilian producers and increase prices from their current rate of around $80.

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"We've more or less been saying potentially Saudi needs to just flush this thing out," he told the US broadcaster.

This could follow a strategy deployed by Riyadh to edge out US shale producers when Saudi Arabia ramped up oil production in 2014 sending prices plunging from $114 a barrel to a low of $27 in 2016.

It saw Saudi Arabia lose huge sums in revenues but regain control of the market and sent many US oil companies out of business.

But with prices rising the US oil companies have re-entered the market, increasing production to a record high in September of 13.2 million a day in September which has proved to be a major headache for OPEC+, Sankey said.

Brazil has said it will join OPEC+ countries in a meeting in  January, although it is not sure whether it will become a full member of the group or an observer state.

The UAE also plans to boost production, it recently emerged, despite commitments as host of COP28 to help tackle climate change.

Another recent report revealed that Saudi Arabia aims to "hook" developing African and Asian countries on oil by flooding these markets with crude.

Despite this, Saudi Arabia is reportedly looking to shift its own economy off oil and gas production via the ambitious Vision 2030 project.