Saudi Arabia's Oil Production Plan and OPEC Strategy

Post by : Monika

Photo: Reuters

Saudi Arabia, the biggest oil exporter in the world, is taking major steps to shape how oil is managed and sold around the globe. It is doing this through the group called OPEC+. This group includes oil-producing countries such as Saudi Arabia, Russia, the United Arab Emirates (UAE), Kuwait, Oman, Iraq, Kazakhstan, Algeria, and a few others.

In early July, these countries made a big decision. They agreed to increase their oil production by 548,000 barrels per day starting in August 2025. But this is only one part of a bigger plan. By September 2025, they plan to raise production in total by about 2.5 million barrels per day, reversing earlier cuts they had made.

Why Is Saudi Arabia Taking the Lead?
In the 1990s, Saudi Arabia used to produce about 13% of the world's oil. But by 2024, this number had dropped to 11%. Its share of oil shipments sent by sea also dropped—from 18% to 15%. This means that Saudi Arabia’s role in the oil market has become smaller.

To gain back its strong position, Saudi Arabia wants to produce more oil than other countries in OPEC+ can manage. Most OPEC+ countries are already pumping out as much oil as they possibly can. Some are even going above their allowed limits. But Saudi Arabia and the UAE still have extra oil production capacity. That means they can increase their output if needed.

In June 2025, Saudi Arabia was producing about 9.55 million barrels per day. In August, it plans to increase that by 200,000 barrels, using some of its spare capacity. In total, Saudi Arabia has about 3 million barrels per day in extra supply that it can use if the market needs more oil.

What Are the Short-Term and Long-Term Goals?
Short-Term Goal: Take Back Market Share
By increasing oil production now, Saudi Arabia can sell more oil and win back market share from others. Since most other oil producers have reached their limits, Saudi Arabia can take a bigger role without flooding the market.

Long-Term Goal: Pressure Rivals
By producing more oil, prices may go down. This puts pressure on U.S. shale oil companies, which need oil prices to stay between $65 and $70 per barrel to earn profit. With prices falling below $70, many U.S. companies may stop drilling or even shut down. Saudi Arabia, on the other hand, can afford to produce oil at a lower cost and continue selling, even at low prices.

This means that while others struggle, Saudi Arabia can stay in the game and even grow stronger.

The Bigger Picture: Who Else Is Producing Oil?
In June 2025, oil production by OPEC+ went up. Eight member countries added 270,000 barrels per day. Saudi Arabia and the UAE led this increase—Saudi Arabia added 200,000 barrels, and the UAE added 100,000 barrels.

At the same time, countries outside OPEC+, like the United States, Brazil, and Canada, are also increasing their oil production.

Saudi Arabia believes that by being careful about adding new oil capacity and by being the one with extra supply, it can stay in control of the market. It knows that if prices stay low, some countries might slow down production or delay investments in oil.

What Risks Come with More Oil in the Market?
1. Falling Prices
If more oil is available, prices may stay low. This is good for people who buy fuel, but not good for oil producers. Their profits may drop.

2. U.S. Shale Industry May Shrink
Companies in the U.S. that produce oil from shale rock might slow down. These companies need higher prices to make a profit. The U.S. government has already predicted that U.S. oil production may fall from 13.5 million barrels per day to 13.3 million barrels per day by the end of 2026.

3. Lower Investments
When prices are low, oil companies invest less in finding and producing new oil. This can lead to future shortages if demand rises later.

Saudi Arabia’s Special Position
Saudi Arabia has nearly 3 million barrels per day of oil it can still add to the market. However, using all of this spare capacity takes time and planning.

The UAE also has some spare oil capacity, but it’s smaller than Saudi Arabia’s. This gives Saudi Arabia more control and flexibility in managing oil supply.

Problems Within OPEC+
Some countries in OPEC+, such as Kazakhstan and Iraq, have been producing more oil than they were allowed. Saudi Arabia is now using its increase in production as a way to encourage other countries to stick to the rules. This helps maintain order within the group.

What’s the Timeline for Oil Increases?
August 2025: OPEC+ will add 548,000 barrels per day, including 300,000 barrels from the UAE.

September 2025: Another 550,000 barrels per day will be added. This will complete the reversal of the earlier 2.17 million barrel-per-day cuts.

After September: Saudi Arabia may choose to cut oil production again if needed. This helps it stay flexible and in control.

What Does This Mean for the World?
Consumers
People may benefit from lower oil prices. This could mean cheaper fuel for cars and lower heating bills.

Investors
This strategy is risky. If oil prices fall too much, oil companies may lose money. But if Saudi Arabia reduces production again, prices might rise later, leading to gains.

U.S. Shale Companies
Some companies may reduce oil drilling or stop production due to low profits.

Global Economy
Lower oil prices help countries that import oil, but they can hurt countries that depend on oil sales to earn money.

Saudi Arabia is making a big move in the oil market. It wants to sell more oil now, win back its market share, and make it harder for high-cost rivals to survive. This may help Saudi Arabia stay the leader in global oil in the long run.

But the plan is risky. If prices stay too low for too long, oil companies may stop investing in new supply. When demand goes up again in the future, there may not be enough oil to meet it.

Saudi Arabia is betting on its ability to produce cheap oil, wait out its competitors, and control the market by being the one with spare oil ready to go. It is a strategy for both now and the future.