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OPEC Or Not OPEC, That Is The Question


By Katrina Abuls  |  January 12, 2024

Disagreement and competing interests among member countries at recent OPEC meetings have introduced concerns on whether Saudi Arabia can continue to rally a market management strategy over the coming months. With OPEC+ market share reaching 53% of global output at the end of 2023 vs 63% ten years ago, questions remain on how to react to growing production outside of OPEC and its partners.

A Quick Look Back

Through 2011, OPEC production was largely out of compliance, but supportive oil prices provided less incentive for OPEC’s members to remain within their quotas. The group controlled over 60% of the market at the time, and the only other major single producer was Russia. But then in 2011, the U.S. shale boom kicked off, and U.S. production increased from averaging 5 MMb/d from 2005–2011 to 9.7 MMb/d in April 2015. By late 2014, Brent dropped from above $100/bbl to ~$50/bbl, and many in the market believed OPEC would take action. While OPEC formally said little, they decided to open the taps and add ~4MMb/d from March 2014–November 2016, with the goal of putting downward pressure on prices to reduce higher cost production in the U.S. and on other OPEC members producing above their quotas. As a result, the Brent price bottomed at $28/bbl in early 2016, and by December, Saudi Arabia, having suffered through budget deficits and spending foreign currency reserves, got OPEC to partner with ten other countries to cut production, creating OPEC+. Since then, compliance has been more in line compared to when OPEC was managing the market alone, however, this has been at the expense of Saudi Arabia and Russia, which became the swing producers taking the brunt of the cuts.


2014 All Over Again?

The end of 2023 started to see comparisons to 2014, as the last round of voluntary OPEC cuts did little to increase the oil price, calling into question the effectiveness of OPEC going forward. Though the group as a whole is producing under its quota, the UAE and Iraq are now producing 100 Mb/d and 375 Mb/d, respectively, above their quotas, which may cause strain within the group going forward. The loss of market share and dwindling influence on the market as non-OPEC+ countries, such as the U.S., ramp up production may be a tipping point that causes a rather dramatic change in policy. On the flip side, as uncertainty looms over global economics, the group may wait and try to bring supply and demand back into balance.


The IEA estimates total spare capacity, the difference between current production and sustainable capacity, for OPEC+ is 5.16 MMb/d as of November 2023. Sustainable capacity, currently sitting at 41.84 MMb/d for OPEC+, is defined as a sustainable production level that can be reached within 90 days. Saudi Arabia’s spare capacity is estimated at 3.16 MMb/d, while the UAE’s is 0.96 MMb/d. Iraq could bring 0.46 MMb/d online within 90 days, but almost all of this production is in Kurdistan and has been shut-in with the stoppage of the Iraq-Turkey Pipeline. With 4.6 MMb/d of spare capacity among them, there is substantial volume available to flood the market should the group choose to.


Risks For 2024

BTU Analytics cannot rule out the possibility that OPEC+ comes apart again. However, it’s more likely the group remains together and loses some of its effectiveness in increasing prices, at least in the medium-term. The decision may be made to add barrels to pressure non-OPEC+ producers over the next year, with the anticipation that production growth outside of the cartel and its partners could slow.

Saudi Arabia may not want to take on further cuts to allow countries such as the UAE and Iraq to increase production. However, it may need to continue to live with the UAE overproducing in order to keep the group together, as the UAE leaving could signal to other members that the effectiveness of OPEC+ has ended.

One of the main themes to watch going forward will be how OPEC reacts to growth in Iran and Venezuela. There may be calls for adding quotas to these countries as well, but these calls will likely be met with resistance, with Iran citing sanctions in place and Venezuela citing the need to develop its struggling oil industry. The outcome of the U.S. presidential election could also again change the trajectory of Iran and Venezuela’s production. To see how these risks may impact the 2024 global oil market and pricing, see BTU Analytics’ Oil Market Outlook.



BTU Analytics is a FactSet Company. This article was originally published on the BTU Analytics website.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

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The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.