Saudi oil pivot could shake global markets and hit Alberta hard

Riyadh is walking away from its role as oil market stabilizer, signalling a return to market-share battles that threaten prices and Canadian revenues

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After boosting crude oil output by 411,000 barrels per day (bpd) in May—triple the originally planned volume—OPEC+ shocked observers by intending to repeat the increase in June, despite slowing global demand and the dampening effects of U.S. trade tariffs.

The decision has ripple effects far beyond the Middle East. OPEC+—the alliance of the Organization of Petroleum Exporting Countries and allies such as Russia—collectively controls about 40 per cent of the world’s oil production. Its actions directly influence global oil prices, which in turn affect everything from gasoline prices across Canada to government revenues in resource-dependent provinces like Alberta.

Is OPEC+ sabotaging itself?

The move contradicts the group’s modus operandi of the past several years. Since 2016, OPEC+, led by Saudi Arabia, has tried to balance global oil markets by curbing output. At its peak, the group cut production by more than five million barrels per day—about five per cent of global supply—with Saudi Arabia alone contributing two-fifths of that total.

This strategy was meant to stabilize prices and ensure petrostates such as Saudi Arabia could meet ballooning budget demands. Many OPEC members remain heavily reliant on oil revenues to fund government spending, with few alternative income streams.

But after years of shouldering the burden, Riyadh appears to have had enough. Reuters recently reported that Saudi officials have been quietly telling allies and industry experts the kingdom is no longer willing to continue absorbing the cost of propping up global prices through deeper cuts.

There is logic behind this frustration. Despite OPEC+ efforts, markets remain volatile. Crude has dropped about 19 per cent this year, briefly touching a four-year low, mainly due to fears that U.S. tariffs will reduce global energy demand.

Some of this instability can be traced to cheating within OPEC+. Several members, including Iraq, Kazakhstan and Russia, have regularly exceeded their quotas, often at Saudi Arabia’s expense.

Riyadh’s patience appears to have run out. “OPEC’s decision framework appears to be fuelled by persistent cheating,” noted TD Cowen strategists Dan Ghali and Bart Melek. The group warned in a note to clients that inventories could rise by 200 million barrels in the next three quarters, potentially pushing crude prices into the low US$50 range.

Saudi Arabia has no intention of sacrificing more market share to cover for others. This echoes an earlier episode when former Saudi oil minister Ali Al-Naimi, frustrated by similar quota violations and the rise of U.S. shale producers, chose to flood the market to protect Saudi interests. In 2016, he famously told American drillers they could “lower costs, borrow cash or liquidate” as prices sank below US$50 per barrel.

The result was carnage in the oil patch—and a temporary ceasefire among producers.

History may be repeating itself. With other OPEC+ members again failing to meet targets, sources told Reuters that Riyadh is now shifting strategy. Rather than continuing to play the role of swing producer, Saudi Arabia may focus on regaining market share by boosting production, effectively stepping back from the group’s five-year effort to balance prices.

Despite its dependency on oil revenues, the kingdom appears ready to endure lower prices. Media reports quoting government sources suggest Saudi Arabia may increase borrowing and scale back spending to compensate. “The Saudis are ready for lower prices and may need to pull back on some major projects,” one insider told Reuters.

Saudi Arabia needs prices above US$90 per barrel to balance its budget—a higher threshold than other major producers such as the United Arab Emirates, according to the International Monetary Fund (IMF).

Theories abound about the motivations behind the kingdom’s apparent policy shift: retaliation against quota-busting allies, competition with emerging producers like the United States and Guyana, or even an attempt to please U.S. President Donald Trump, who has publicly called for higher OPEC output to ease gasoline prices.

Whatever the motivation, the consequences are real. The IMF has lowered its economic growth forecast for oil-exporting Middle East countries to 2.3 per cent from four per cent projected in October, citing lower prices and rising geopolitical uncertainty. It also revised Saudi Arabia’s growth outlook to three per cent from 3.3 per cent after oil prices fell 13 per cent in the past month alone.

This has implications far beyond the Middle East, including for Canada. For Alberta, where oil sales remain a pillar of the economy, weakening global prices mean reduced royalties, tighter fiscal planning and less room for public investment.

As global oil markets enter another uncertain chapter, the aftershocks will be felt from Riyadh to Edmonton.

Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, particularly in the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.