OPEC+ Policy Shift 'Highly Significant'

In a report sent to Rigzone by Standard Chartered Bank Commodities Research Head Paul Horsnell recently, analysts at the bank, including Horsnell, noted that, in their view, “the shift in OPEC+ policy announced on April 3 is a highly significant one”.

“We think the market was surprised by the acceleration of the unwinding of the voluntary cuts, although the main surprise for the market should perhaps have been that this did not happen earlier as the situation has been building for many months,” the analysts stated in the report.

“Last September we noted, ‘in our view, the major underlying story is that Saudi Arabia will want to accelerate the phasing out of voluntary cuts unless all partners involved fulfil their promises, adding to the raft of warnings given recently to any country seeking to free-ride on the compliance of others’,” they highlighted.

“After months of further warnings and attempts at compliance by the worst offenders that often appeared formulaic and somewhat half-hearted, the time for acceleration has now come,” they continued.

In the report, the analysts went on to state that they think there are three main points to be made about the acceleration.

“One, it is entirely focused on OPEC+ members; non-OPEC+ producers and U.S. shale in particular are not the focus,” the analysts said in the report.

“Two, given the tightness of the immediate market, the scale of the acceleration is not large enough to lead a Q2 supply surplus,” they added.

“Three, this is an initiative taken by OPEC+ members to make the grouping more effective and its actions more credible; it is not the result of coordination with, or requests from, any other groups or individuals,” they noted.

Expanding on the first point in the report, the analysts said they would stress that this is not in itself a battle for market share, adding that the target is to improve promise keeping within OPEC+.

“However, we accept that non-OPEC+ producers may think that the consequences are very similar to a shift towards market share; being the direct target of a policy and being collateral damage from a policy may feel exactly the same in terms of the bottom line,” they stated.

“In the case of U.S. shale, we think output growth was already set to slow sharply; the industry had compromised itself with a low level of hedge protection and its greatest problems are now the price and cost effects of U.S. tariff policy,” they added.

“In terms of the reasons why the U.S. shale oil industry cycle has moved into a highly negative phase, we would put OPEC+ policy a long way down the list of U.S. industry problems, behind tariffs, cost inflation, hedging choices, geology, and financial exposure,” they continued.

Adding to their second point in the report, the Standard Chartered Bank analysts noted that the acceleration of the voluntary cut phase out still leaves a draw in their model. They added that the immediate demand effects of U.S. tariff experimentation are also not enough to drag the Q2 balance into significant surplus.

“This makes the latest OPEC+ production increase policy unusual relative to previous ones,” they said in the report.

“Policy induced large OPEC and OPEC+ production increases have tended to unbalance the market immediately, creating inventory builds that can take a significant time to erode in later phases of market normalization,” they added.

“This time the policy intervention does not seem to come with an immediate and large bill in the form of sharply higher inventories,” they continued.

Expanding on their third point, the Standard Chartered Bank analysts said it is perhaps very tempting for traders to attempt to draw a line between the U.S. tariff announcements and the OPEC+ policy initiative, given that they were announced within 24 hours of each other. They stated, however, that they do not think there is any link and added that OPEC+ was not responding to any U.S. government request to help reduce prices in an attempt to provide a limited offset to the consequences of its tariff actions.

“By creating recessionary expectations, the U.S. government in any case proved that it needs no help in forcing prices sharply lower,” the analysts said in the report.

“U.S. tariff policy certainly helped to magnify the message behind the OPEC+ policy change, but it did not cause it … this was a shift that had been discussed long before and, if anything, was overdue,” they added.

Rigzone has contacted OPEC, the White House, the U.S. Department of Energy, and the American Petroleum Institute for comment on the Standard Chartered Bank report. At the time of writing, none of the above have responded to Rigzone.

A release posted on OPEC’s website on April 3 announced that Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman met virtually on that day “to review global market conditions and outlook”.

“In view of the continuing healthy market fundamentals and the positive market outlook, and in accordance with the decision agreed upon on 5 December 2024, subsequently reaffirmed on 3 March 2025, to start a gradual and flexible return of the 2.2 million barrels per day voluntary adjustments starting from 1 April 2025, the eight participating countries will implement a production adjustment of 411,000 barrels per day, equivalent to three monthly increments, in May 2025,” the release stated.

“This comprises the increment originally planned for May in addition to two monthly increments. The gradual increases may be paused or reversed subject to evolving market conditions,” it added.

“This flexibility will allow the group to continue to support oil market stability. The eight OPEC+ countries also noted that this measure will provide an opportunity for the participating countries to accelerate their compensation,” it continued.

The release went on to state that the eight countries reaffirmed their commitment to the voluntary production adjustments agreed at the 53rd JMMC meeting on April 3, 2024.

“They also confirmed their intention to fully compensate any overproduced volume since January 2024 and to submit updated front-loaded compensation plans to the OPEC Secretariat by 15 April 2025 which will be posted on the Secretariat's website,” it added.

“The eight OPEC+ countries will hold monthly meetings to review market conditions, conformity, and compensation. The eight countries will meet on the 5th of May to decide on June production levels,” it went on to state.

To contact the author, email andreas.exarheas@rigzone.com