The Organization of the Petroleum Exporting Countries and its allies (OPEC+), which collectively produce about 48% of global oil, have begun unwinding a series of voluntary output cuts implemented since 2022. This strategic shift, led by key members like Saudi Arabia and Russia, aims to reclaim market share, address non-compliance among members, and challenge high-cost producers, notably U.S. shale. As of May 2025, OPEC+ is gradually increasing production by 2.2 million barrels per day (bpd), with significant implications for member countries, the global oil market, and the U.S. shale industry. This article explores the dynamics of this policy change, its country-specific impacts, and the broader consequences for oil markets, with a focus on U.S. shale.
OPEC+ Unwinding Strategy: A Shift in Priorities
OPEC+ has been cutting output by approximately 5.3 million bpd—roughly 5% of global demand—through three layers of reductions since 2022 to stabilize prices amid volatile demand and rising non-OPEC supply. The most recent layer, a 2.2 million bpd voluntary cut by eight members (Saudi Arabia, Russia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman), is now being phased out. The unwinding began in April 2025, with accelerated increases of 411,000 bpd each month for May, June, and July, totaling 1.37 million bpd so far, leaving about 830,000 bpd to be unwound. Discussions suggest the group may fully phase out these cuts by October 2025, significantly faster than the original September 2026 timeline.
This acceleration reflects multiple objectives:
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Punishing Non-Compliance: Saudi Arabia, the de facto leader, is pushing to discipline members like Iraq and Kazakhstan, which have consistently exceeded quotas. For instance, Kazakhstan’s output rose 2% in May 2025, defying OPEC+ pressure to cut back.
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Reclaiming Market Share: After years of ceding ground to non-OPEC producers, particularly U.S. shale, OPEC+ aims to recapture market share by increasing supply.
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Responding to External Pressures: U.S. President Donald Trump’s calls for lower oil prices and looming trade tariffs have influenced OPEC+ to boost output, potentially to mitigate economic fallout.
Country-Specific Impacts
The unwinding of cuts affects OPEC+ members differently, depending on their production capacity, fiscal needs, and compliance history.
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Saudi Arabia: As the only member with significant spare capacity, Saudi Arabia is well-positioned to increase output, potentially adding substantial volumes. However, the kingdom relies on oil prices above $80 per barrel to fund its Vision 2030 economic diversification, making it vulnerable to sustained low prices (currently around $65 per barrel). The strategy to discipline overproducers and challenge U.S. shale risks short-term revenue losses but aligns with long-term market share goals.
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Russia: Russia supports the output hikes to maintain export revenues, especially amid Western sanctions. However, its overproduction, alongside Kazakhstan and Iraq, has strained OPEC+ cohesion. Russia’s ability to ramp up is constrained by infrastructure and geopolitical challenges, limiting its immediate gains.
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Iraq and Kazakhstan: Both countries face pressure to compensate for past overproduction. Iraq has submitted plans to cut 378,000 bpd in May 2025, but compliance remains inconsistent. Kazakhstan, citing difficulties in curtailing Western oil majors like Chevron and ExxonMobil, has openly prioritized national interests, increasing output by 37,000 bpd in March 2025. This defiance could lead to stricter OPEC+ enforcement or further output hikes to depress prices, impacting their revenues.
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UAE, Kuwait, Algeria, Oman: These countries are increasing production in line with the unwinding plan, benefiting from higher output quotas. The UAE, with ambitious capacity expansion plans, stands to gain significantly, while Kuwait and Oman face tighter fiscal constraints due to lower breakeven prices. Algeria’s modest output limits its impact.
Global Oil Market Implications
The OPEC+ decision to unwind cuts has reshaped the global oil market, contributing to a complex supply-demand balance:
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Oil Prices: Brent crude has hovered around $65 per barrel, recovering from a four-year low of below $60 in April 2025, driven by OPEC+ hikes and Trump’s tariffs raising economic uncertainty. The International Energy Agency (IEA) forecasts global oil supply to rise by 1.6 million bpd in 2025, up 380,000 bpd from prior estimates, largely due to OPEC+ increases. However, global demand growth is projected at a modest 1.17 million bpd (Standard Chartered) to 1.3 million bpd (OPEC), tempered by trade tensions and slower economic growth. This supply-demand mismatch risks keeping prices volatile and low.
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Market Share Dynamics: OPEC+’s increased output aims to reclaim market share from non-OPEC producers, particularly the U.S., which accounts for nearly 60% of global supply outside OPEC+. However, the strategy hinges on compliance and demand resilience. Overproduction by members like Kazakhstan undermines the group’s ability to control supply, while soft demand, especially in China, limits price recovery.
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Inventory Levels: Despite the hikes, global oil inventories remain low, supporting OPEC+’s claim of “healthy market fundamentals.” However, accelerated unwinding could lead to oversupply if demand weakens further, especially under tariff-induced economic slowdown.
U.S. Shale: Under Pressure but Resilient
The U.S. shale industry, a key target of OPEC+’s output strategy, faces significant challenges but demonstrates resilience due to technological advances and cost efficiencies.
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Price Pressure: WTI crude prices around $57-$60 per barrel are below the breakeven point for many shale wells, particularly outside the Permian Basin, where costs are lowest. Goldman Sachs notes that higher-cost shale regions are scaling back, with 14 rig cuts announced in 2025. Kpler predicts U.S. crude output will peak in 2025, with growth slowing due to low prices and tariff-related cost increases (e.g., steel and equipment).
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Production Outlook: U.S. shale production, currently around 13.4 million bpd, is expected to decline by 1.1% in 2025, a rare contraction. The IEA and OPEC have trimmed U.S. supply growth forecasts to 800,000 bpd for 2025, down from 900,000 bpd, citing lower capital spending and reduced drilling activity. However, efficiency gains from horizontal drilling and cost controls have lowered Permian breakeven costs, allowing some producers to remain competitive.
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OPEC+ Strategy: Saudi Arabia and Russia aim to undercut shale by pushing prices below $60-$70, shale’s typical breakeven range. This echoes the 2014 price war, which failed as shale producers adapted through technology. Posts on X suggest OPEC+ is intensifying this “high-stakes gambit” to squeeze high-cost operators, but U.S. shale’s improved cost structure and flexibility limit the impact compared to a decade ago.
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Offshore Offset: While shale faces headwinds, U.S. offshore production in the Gulf of Mexico is projected to rise from 1.8 million bpd to 2.4 million bpd by 2027, driven by streamlined permitting under a potential second Trump administration. This could offset shale declines, maintaining U.S. output levels.
Broader Context and Future Outlook
OPEC+’s unwinding of cuts occurs amid global economic uncertainty, exacerbated by Trump’s tariffs and retaliatory measures from China and the EU. The IEA and OPEC have cut 2025 demand forecasts to 730,000-1.3 million bpd, citing trade disruptions and slower growth. This environment complicates OPEC+’s strategy, as increased supply could oversaturate the market if demand falters.
For member countries, the unwinding offers short-term revenue gains but risks long-term price suppression, particularly for those with high fiscal breakeven points like Saudi Arabia and Iraq. Kazakhstan’s defiance highlights internal tensions, potentially forcing stricter compliance measures or further output hikes to discipline overproducers.
For the U.S. shale industry, low prices and rising costs pose immediate challenges, but technological resilience and offshore growth provide a buffer. OPEC+’s attempt to “squeeze” shale may not replicate past failures, as U.S. producers have adapted to lower price environments. However, sustained prices below $60 could curb investment, slowing growth into 2026.
Conclusion
OPEC+’s decision to unwind 2.2 million bpd of voluntary cuts marks a pivotal shift from price support to market share competition, driven by Saudi Arabia and Russia’s dual aims of disciplining non-compliant members and challenging U.S. shale. While member countries like the UAE and Saudi Arabia stand to gain from increased output, others like Iraq and Kazakhstan face compliance pressures. The global oil market faces volatile prices and potential oversupply risks, with demand growth uncertain amid trade tensions. U.S. shale, though under pressure, benefits from efficiency gains and offshore potential, limiting OPEC+’s ability to dominate the market. As OPEC+ navigates this high-stakes strategy, the oil market’s balance hangs on compliance, demand resilience, and the adaptability of non-OPEC producers.
This still makes me pause and consider the rising costs of steel and its impact on US shale producers. As we evaluate oil and gas deals at Sandstone Group, we are keeping the cost issue with steel close at hand. And in the Permian, water costs are something not to ignore. More conventional drilling and less fracking seem to be on the horizon, and we will keep you updated.
Energy News Beat will continue to monitor these developments, providing updates on OPEC+ policies, U.S. shale dynamics, and global oil market trends.
Sources:
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Reuters: OPEC+ Unwinding Output Cuts, U.S. Shale Impacts
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OilPrice.com: OPEC+ Strategy and U.S. Shale Outlook
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CNBC: OPEC+ Production Hikes
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Posts on X: Sentiment on OPEC+ and U.S. Shale
