What will happen to oil prices? Experts discuss OPEC+ plan to boost production

Let us recall that on March 3, Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman confirmed the decision to gradually increase oil production starting from April 1, 2025.

Why does OPEC+ intend to ramp up oil production?

The decision of OPEC+ countries to lift restrictions on increasing oil production by 138,000 barrels per day is aimed at stabilizing commodity prices, says the chairman of Kazakhstan's oil and gas council “PetroCouncil” Asylbek Zhakiyev.

“So that the price does not fall too much and, of course, does not rise. Because if the price per barrel rises too quickly — this also negatively affects producers. This primarily impacts consumer countries. They will be forced to reduce purchase volumes and look for new energy sources, and accordingly, producers suffer directly or indirectly. The actions of OPEC+ are needed to adjust the balance of supply and demand,” he said.

Current oil price

Oil prices are declining for the third session in a row on Wednesday, March 5, as OPEC+’s plans to increase production in April, along with concerns that US tariffs on Canada, Mexico, and China will slow economic growth and fuel demand, have negatively affected investor sentiment, reports Reuters.

Brent futures fell by 15 cents to $70.89 per barrel by 02:00 GMT. In the previous session, the contract dropped to $69.75 — the lowest level since September 11, the news agency writes.

Further dynamics

Regarding oil prices, experts believe that increased production will slow the rise in oil prices, but a sharp drop is not expected. At the same time, it is important to consider that the global situation is changing dynamically.

“The gradual increase in oil production will halt the overall rise in oil prices. However, I don't think oil prices will plummet,” said economics expert and financial advisor at R-Finance Arman Baiganov.

The economist notes that the “trade war” may also affect oil prices.

“The price will vary between 70 and 80 (dollars) throughout the year with slight deviations,” he said.

In his opinion, international financial institutions, especially in the US and other countries, are reluctant to finance the oil industry because commodity prices are unstable globally.

In particular, this is due to countries transitioning to alternative energy, notes the financial advisor.

“Thus, due to underfunding of the oil industry worldwide, I don't think oil prices will drop significantly, for example, to pre-pandemic levels. It may fall slightly below 70, but it’s unlikely to go much lower,” said Arman Baiganov.

According to oil and gas expert Askar Ismailov, in the short term, prices will trend downward.

“This is a natural reaction to increased supply. But this is only within basic market mechanisms. We must understand that the global situation is changing rapidly. And even with increased production levels by OPEC+, it may happen that somewhere else production drops sharply, offsetting OPEC+'s increase. And then prices will rise again. In the long term, OPEC+ has already made a reservation that it may revise its strategy depending on the market situation,” he said.

When might OPEC+ change course?

OPEC+’s statement said they would consider “the ability to adapt to changing conditions.” According to the expert, several factors could lead to a suspension or cancellation of the planned increase.

“A sharp drop in oil prices could lead to abandoning the increase in oil production. Right now, this may be an adequate reaction — a slow decline. If it becomes disproportionate, of course, OPEC+ will reconsider its position. Second — a sharp increase in production in non-OPEC+ countries. This would also be a signal to revise the plans,” said Askar Ismailov.

For Kazakhstan, this is good

“The obligations on maximum production volumes will decrease. As we remember, Kazakhstan has often violated its commitments under OPEC+. Now the situation will become more comfortable. Considering the gradual increase in production at Tengiz, this is good for Kazakhstan,” said oil and gas analyst and director of PACE Analytics Askar Ismailov.

According to OPEC+’s statement, countries with excessive production volumes agreed to accelerate the fulfillment of their compensation obligations so that most of it is compensated in the early months of the compensation period.

In turn, Kazakhstan previously confirmed its commitment to its obligations under OPEC+.

“Kazakhstan will take further measures to fulfill its obligations, including submitting an updated compensation plan with a greater load on the earlier months of the compensation period for the overproduced volumes since January 2024,” said the Ministry of Energy.

The chairman of Kazakhstan's oil and gas council, Asylbek Zhakiyev, notes that although Kazakhstan is part of OPEC+, there are no legal agreements on reducing oil production.

“This is more of a 'gentleman's agreement.' Even though Kazakhstan says it will comply with the rules, for various reasons, it has not been able to do so, and production has only increased. In the expert community, there is no clear idea of how we could achieve this. For example, the Tengiz expansion project has been launched, which is an additional million tons of oil entering the market. Moreover, 70% of oil production in our country belongs to American and European corporations. Kazakhstan’s share is about 20%. So, to reduce production, we need to negotiate with them. If there is a reduction, as the Ministry of Energy says, it will happen at the expense of other fields — for example, at the expense of 'KazMunayGas.' Otherwise, I don't see another solution,” said Asylbek Zhakiyev.

Earlier, it was reported that Kazakhstan aims to increase its oil refining capacity to 18.5 million tons, as CaspiBitum is expected to complete its expansion project by the end of May this year, increasing its capacity from 1 million to 1.5 million tons. This was announced during a government meeting chaired by Deputy Prime Minister and Minister of National Economy Serik Zhumangarin, focused on ensuring economic growth, the potential of the oil and gas industry this year, and the investment and economic development of the Mangistau region.