Saudi Minister Warns of $50 Oil as OPEC+ Members Flout Production Curbs

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The Saudi oil minister has said that prices could drop to as low as $50 per barrel if so-called cheaters within OPEC+ don’t stick to agreed-upon production limits, according to delegates in the cartel.

The statements were interpreted by other producers as a veiled threat from the kingdom that it is willing to launch a price war to keep its market share if other countries don’t abide by the group’s agreements, they said.

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After Iran launched missiles at Israel on Tuesday, oil prices climbed after weeks of steady declines. Brent crude, the international benchmark, gained as much as 5% before settling at 2.4% higher at just under $70.

There are fears in the West that a wider war could choke oil exports from the Gulf that pass through the Strait of Hormuz, which borders Iran, and push prices higher.

But geopolitical tensions have persisted for months without meaningful effect on oil prices, and the declines have been frustrating for Saudi officials in part because other cartel members have flouted plans to limit production for much of this year.

During a conference call last week, Prince Abdulaziz bin Salman, the oil minister of OPEC kingmaker Saudi Arabia, warned fellow producers prices could drop to $50 a barrel if they don’t comply with agreed production cuts, according to OPEC delegates who attended the call.

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Some cartel members that signed on to the cuts have pumped more barrels than they promised, rendering the supply curbs less effective. In addition to Iraq and Kazakhstan, Russia also produced more than its quota this year through July, according to Aug. 8 data from S&P Global.

Despite rising geopolitical tensions, prices are languishing below $75 a barrel—their lowest level in nine months—largely due to slowing economic growth. Saudi Arabia needs prices at $85 per barrel to help fund its economic transformation, analysts say.

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Saudi Arabia initiated a price war on oil with Russia in March 2020. The kingdom’s decision to pump to record levels amid the Covid pandemic facilitated a 65% quarterly fall in the price of oil to 17-year lows, with some prices in the U.S. turning negative for the first time ever.

Another move by Saudi Arabia to boost production to punish other producers led to a collapse of oil prices to below $10 per barrel in 1986.

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