Us and European oil and gas companies are tightening their investment spending, making it easier for Saudi Arabia and Russia to fund their political campaigns.
the Saudi-led Organization of the Petroleum Exporting Countries (Opec) Opec and its oil-exporting Allies, led by Russia, recently extended voluntary production cuts, betting that Western producers will not respond to higher energy prices as they once did. So far, OPEC+ has largely got it right. Even with oil prices above $90 a barrel, there were 11 fewer RIGS in operation in the United States on Sept. 22 than a week earlier and 134 fewer than a year ago, according to Baker Hughes, an oilfield services company.
Companies such as Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) are under pressure to pay out to shareholders after years of lackluster returns. According to Daan Struyven, an analyst at Goldman Sachs, U.S.-listed oil producers are now reinvesting only half of their operating cash flow, compared with 90 percent or more in the years leading up to the pandemic.
That could reassure Opec + that it can curb supply despite unusually high prices without losing significant market share, as it did at the peak of the shale boom.



European giants Shell PLC (SHEL) and BP PLC (BP) are even less likely to respond quickly to today's high oil prices because their projects, especially offshore, can take years to come on stream.
Record high oil demand and lower-than-expected Opec + supply mean a shortfall of more than 1 million barrels per day in the final quarter of 2023. Many analysts expect oil prices to rise above $100 in the near term.
Looking ahead to 2024, Bernstein estimates that an additional 1 million barrels per day of supply will be needed to meet demand. Supply from non-OPEC sources is likely to meet only about half of this increase in demand, so the world will rely on Opec to increase production.
Such a tight market is good news for Saudi Arabia and Russia. The Saudi government needs to keep oil prices above $80 a barrel to balance its budget, especially as luxury infrastructure projects such as the futuristic desert city of Neom have failed to attract as much overseas investment as it hoped.
Russia is also under pressure. According to S&P Global Commodities (S& Since the start of the war in Ukraine, the oil price the Kremlin needs to balance its books has risen to $114 a barrel from $64 before the invasion, according to P Global Commodity Insights. Low oil prices will cause huge losses for Russia, which may explain why it has been more compliant with Opec + quotas in recent months.
As long as global oil demand does not fall sharply in the near term, less spending by Western energy companies on new production will boost Opec + 's clout. Middle Eastern Oil companies like Saudi Arabian Oil Co., or Aramco, and ABU Dhabi's ADNOC are reinvesting at a much faster rate than the U.S. and European supermajors, compared to pre-pandemic levels. According to Olga Savenkova, an analyst at Rystad Energy, this trend is expected to continue until at least 2025.



Russia and Saudi Arabia still need to carefully consider what level they can push oil prices too high, which could dent demand and make alternative energy investments such as solar and wind more attractive. Warren Patterson, head of commodity strategy at ING, also noted that Opec could face geopolitical pressure to release more supply in 2024. Big consumers of Russian oil, the United States and India, both face elections next year and will be sensitive to how voters feel about gasoline prices.
Western oil companies hope that generous dividends and share buybacks will boost stock valuations. But the downside of rewarding investors too much is also becoming clear: oil suppliers that put their national interests first are increasingly dominating the market.