OPEC Faces Mounting Challenges In Managing Surplus Oil Supplies

The Organization of the Petroleum Exporting Countries is grappling with increasing difficulties in managing its surplus oil production capacity, currently estimated at six million barrels per day. Over the past several months, the organization has postponed decisions to increase output multiple times, reflecting concerns over weak global demand and rising production from non-OPEC producers.

In December 2024, OPEC and its allies, collectively known as OPEC+, announced a three-month delay to planned oil output increases, pushing the timeline to April 2025 and extending the complete unwinding of cuts to December 2026. This marked the third deferral, highlighting the group's cautious approach amid uncertain market conditions. Despite these measures, the global oil market is projected to experience a surplus in 2025, with estimates suggesting an excess of 1.4 million barrels per day if OPEC+ proceeds with lifting production cuts as scheduled.

Non-OPEC+ countries, notably the United States, Brazil, Canada, and Guyana, are expected to drive supply growth in the coming years. The U.S., in particular, continues to bolster its position as a leading energy exporter, with production anticipated to increase by 1.1 million barrels per day over the next two years. This surge is attributed to improved drilling efficiency and a focus on high-yield wells. Similarly, Brazil plans to introduce new Floating Production Storage and Offloading units in the Santos Basin, while Canada's output is set to rise with the commencement of the Trans Mountain Pipeline expansion, facilitating access to export markets from Alberta.

The anticipated surplus poses a strategic dilemma for OPEC+. Maintaining production cuts could lead to a loss of market share to non-member producers, while increasing output risks driving prices downward. Internal tensions within the alliance are also evident, with some members, such as Kazakhstan, Nigeria, and the United Arab Emirates, already boosting their production levels. Iraq, for instance, has committed to submitting an updated plan to compensate for past overproduction, underscoring the challenges in adhering to agreed quotas.

Complicating matters further, the recent U.S. presidential election has introduced new variables into the global oil landscape. President Donald Trump's administration has signaled intentions to encourage domestic fossil fuel production, potentially leading to increased U.S. output. This policy direction could undermine OPEC+'s efforts to stabilize prices, as additional American supply enters the market. Analysts predict that such developments may exert downward pressure on prices, with some forecasts suggesting a decline into the low $60s per barrel by late 2025.

OPEC's ability to influence global oil prices has historically hinged on its spare production capacity, serving as a buffer against supply disruptions. However, the current scenario, characterized by ample spare capacity and burgeoning non-OPEC production, diminishes the organization's leverage. The International Energy Agency estimates OPEC's total spare capacity at 5.3 million barrels per day, with Saudi Arabia holding the largest portion. While this capacity can be crucial during supply disruptions, its effectiveness in propping up prices is less certain in an oversupplied market.

MENAFN03032025000152002308ID1109268313