OPEC+ focuses on group compliance after delaying output increase.

• Two OPEC+ delegates, due to the sensitivity of the talks, told CNBC that the coalition has intensified its focus on ensuring its members adhere to the agreement.
• The OPEC+ alliance has been plagued by undercompliance, undermining the credibility of its commitment to reduce production.
• On Thursday, oil prices plummeted due to a Financial Times report indicating that Saudi Arabia, the de facto leader of OPEC+, was willing to endure a low-price market.

The OPEC+ alliance is tightening its enforcement of group compliance with oil output cuts by implementing a three-pronged plan of formal and voluntary production reductions.

OPEC+ delegates, speaking anonymously due to the confidentiality of the negotiations, revealed to CNBC that the coalition has intensified its efforts to ensure its members adhere to their production commitments, particularly in light of ongoing overproduction from countries such as Iraq and Kazakhstan.

Despite being sanctioned in the West and transporting with lower visibility through a shadow fleet, Russia has sometimes exceeded its assigned quota under the alliance's formal policy, according to a source.

In October, eight OPEC+ members, including Saudi Arabia, were scheduled to start returning 2.2 million barrels per day (bpd) of voluntary cuts to the market. However, they postponed this phase-out to December. Additionally, OPEC+ nations are currently operating two other production declines: under official policy, they will produce a combined 39.725 million bpd next year. Furthermore, the same eight members are separately curbing their output by another 1.7 million bpd throughout 2025, on a voluntary basis.

The OPEC+ alliance has been plagued by undercompliance, undermining its commitment to reduce output and damaging its reputation at a time of market instability caused by war in the Middle East, stock market fluctuations, and a precarious post-Covid economic recovery in China, the world's largest crude importer.

On Thursday, oil prices dropped sharply after a Financial Times report revealed that Saudi Arabia, the de facto leader of OPEC+, was prepared to endure a low-price environment and abandon its unofficial $100-per-barrel price target in order to increase its output after December.

At 2:30 p.m. London time, Brent crude futures with November expiry were trading at $71.44 per barrel, down 0.17% from the Thursday settlement. Meanwhile, the front-month November Nymex WTI contract was at $67.75 per barrel, unchanged from the previous session's close.

According to Carole Nakhle, founder and CEO of Crystol Energy, the Saudis may be sending a warning to cheaters within OPEC through the production cuts, as Saudi Arabia has borne the brunt of the burden.

Nakhle stated that the group's possible approach to price targeting is that the higher the better, but nothing has been finalized yet.

The Saudi kingdom, along with other OPEC+ member countries, relies on a fiscal break-even price of $96.20, as estimated by the International Monetary Fund, to meet their annual budget obligations. Despite this, OPEC+ ministers, including Saudi Prince Abdulaziz bin Salman, have previously emphasized that their policies aim to reduce global oil stocks rather than setting an explicit price.

The city of Riyadh is currently undergoing an extensive and expensive program consisting of 14 giga-projects, including the development of Neom, in order to achieve the economic diversification goals of Saudi Crown Prince Mohammed bin Salman, who aims to reduce the kingdom's dependence on hydrocarbon revenues.

Although the Vision 2030 program poses economic challenges, Saudi Arabia remains committed to its OPEC+ strategy and does not set a specific oil price target, according to a source. The source added that Riyadh can adjust its budget or find alternative, non-oil sources of revenue to maintain its financial stability.

Saudi Minister for Investment Khalid al-Falih countered doubts about the country's economic diversification strategy by promoting "green shoring" investment prospects to attract foreign investment.

The possibility of Saudi Arabia utilizing its significant production capabilities to resolve OPEC+ disagreements is not unprecedented. In 2020, Riyadh and Moscow engaged in a price war for several weeks following the abrupt but short-lived dissolution of the OPEC+ alliance. At a time of already high supply and diminished demand due to the Covid-19 pandemic, they flooded the market, causing WTI futures to briefly fall into negative territory.

OPEC+ receives monthly production figures from seven independent secondary sources to calculate member compliance, and the coalition's Joint Ministerial Monitoring Committee, a technical group that oversees OPEC+ conformity, is scheduled to meet next on Oct. 2.