When officials from major oil-producing countries met on Sunday, they had a tough task ahead of them: assuring a volatile market that they would keep oil supplies in check.
The Saudi Arabia-led group, which also includes Russia, known as OPEC+, wants to give disgruntled oil-producing countries such as the United Arab Emirates hope that they may soon get permission to pump crude.
It's no surprise that the deal agreed in the Saudi capital Riyadh on Sunday is complicated, aiming to bolster oil prices by promising deep production cuts to continue into next year.
But it also specifies that some of the cuts will be phased back: Starting in October, oil production in eight countries, including Saudi Arabia, the United Arab Emirates and Iraq, could increase gradually every month until 2025.
For example, according to tables released by the Saudi government, Saudi production is expected to increase from the current level of about 9 million barrels per day to nearly 10 million barrels per day by the end of 2025. This level is still well below the Kingdom's production capacity of 12 million barrels per day.
In one view, the deal was all the group could achieve, given the conflicts of interest.
“This is a here-and-now decision,” said Ra'ad al-Kadiri, senior fellow for energy security and climate change at the Center for Strategic and International Studies, a Washington-based research institute. “This is an exercise in short-term market management.”
Al-Kadiri said he knew OPEC+ could always change course if circumstances changed and that he thought the oil market “would not be disappointed” with the package. Indeed, a news release from the group meeting in Riyadh stated that “monthly production increases may be suspended or withdrawn depending on market conditions.”
The agreement could also be panned for not doing enough to reduce the oil supply glut. “We are surprised that these countries are announcing detailed lifts to production cuts amid reports of unexpectedly strong supplies,” Goldman Sachs analysts wrote after the meeting on Sunday.
Veteran oil analyst Gary Ross said investors were already nervous about oil.“I’m not sure this deal will give them any more peace of mind,” said Mr. Ross, CEO of trading firm Black Gold Investors.
Since the second half of 2022, OPEC+ has been forced to implement a complex series of production cuts in an attempt to boost prices.
Producing countries have largely complied with market management plans, but some have expressed frustration at having to restrict sales of a commodity that is crucial to many budgets.
The United Arab Emirates and Iraq, for example, have maintained production levels well above the agreed-upon limits, a strategy that appears to have worked for the UAE, which has been allowed to gradually increase production by an additional 300,000 barrels per day above the official limit.
The UAE is investing heavily with foreign partners, including France's ConocoPhillips and Total Energies, to boost its oil production capacity and is unhappy with the caps it says do not reflect reality.
Brent crude, the international benchmark, was trading at about $82 a barrel on Friday, well below the more than $100 a barrel levels it reached in 2022 after Russia's invasion of Ukraine but high enough to generate big profits for Western oil companies such as Shell and Exxon Mobil.
But oil-producing countries want prices to rise further to cover development and social costs, analysts say.Saudi Arabia on Sunday offered a small amount of stock in state oil company Saudi Aramco, which could raise up to $13 billion, in a bid to squeeze more money out of its oil industry.