By David Fickling / Bloomberg Opinion

What does it look like when the world’s biggest oil producers capitulate to the decline of their key product? We’re seeing it today.

The surprise weekend announcement by the OPEC+ grouping of more than 1.1 million barrels of production cuts, on top of the 500,000 daily barrels already declared by Russia last month, knocks bullish forecasts for oil consumption on their head. Most had been expecting the current sluggish conditions, which drove Brent crude to a 15-month low March 19, would be replaced by voracious appetites from consumers in the second half of the year as air and road traffic finally recovered to pre-pandemic levels.

Demand in the December quarter would rise to 103.5 million barrels a day, the International Energy Agency reported last month, 2.2 million barrels above its current levels and well ahead of supply. Those conditions should in theory be sufficient to juice prices all on their own without any intervention from OPEC, with declining inventories leading to a rush for remaining supplies. It seems now that ministers from the Organization of the Petroleum Exporting Countries don’t see it that way.

On one level, the new supply cuts are a clear bearish signal for short-term demand. Even if patchy observance means they only amount to 1 million barrels or so, the implied deficit in global oil supplies in the second half of the year would be on a par with what we saw during 2021, when crude prices roughly doubled to their current level of around $80 a barrel. It’s hard to see OPEC countenancing such a drastic tightening in the name of “market stability.” More likely, producers are following the consensus of traders — who pushed crude down 4.9 percent last month — that some of the promised second-half demand is unlikely to materialize.

What’s more telling, though, is what the announcement says about long-term demand. OPEC+, in particular its core members in the Gulf, will have the lowest operating costs in the global oil sector in perpetuity. In a growing or stable market, they should be using their record profits to build their share of upstream production, while keeping prices comfortable enough that consumers aren’t encouraged to change their behavior in a way that will harm the market; flying less, for instance, or buying a Tesla instead of a gas-guzzling truck.

That’s not how they’re behaving right now. Take the view of these production cuts that’s least bearish for short-term demand; that OPEC+ still expects strong second-half oil consumption, but is simply greedy for more oil revenue. That wouldn’t be an irrational way to behave, since the increase in prices might more than compensate for the decline in output from key members.

The question, then, is why those countries want more oil cash, and what they plan to do with it.

In Saudi Arabia, the biggest player, the money very clearly isn’t mainly going into building additional production capacity. During annual results last month, Saudi Arabian Oil Chief Executive Officer Amin Nasser was unyielding in rebutting analysts’ suggestions that the company should be using its $159 billion in net income to upgrade its spending plans. Capital expenditure will instead level off around the middle of this decade, with only half of the total dedicated to boosting output and no plans to build capacity beyond 13 million barrels a day. That represents a modest increase from current levels, especially when inflation is taken into account.

What we’ve seen instead is a flurry of investments in everything except new crude output: $7 billion for a refinery in China announced last week; $8.5 billion in contracts signed in February to build a green hydrogen plant near the Neom planned city close to the Jordanian border; 33 billion riyals ($8.8 billion) for new tourist facilities on the Red Sea and another $50 billion for another development on the outskirts of the capital Riyadh. In total, the government expects some $1.3 trillion to be invested by 2030 with the goal of diversifying the economy away from oil production.

Profits for the world’s lowest-cost oil producers are beyond handsome at the moment; but unlike previous booms, they’re not reinvesting that money in their future. While the numbers of operating oil rigs in the U.S. have more or less returned to pre-pandemic levels, in the Middle East, they’re struggling to break above three-quarters of previous numbers.

OPEC+ wants more cash from the oil market, but it doesn’t think expanding production is the best way to go about that. That’s a bullish sign for prices; but on the demand front, it’s as bearish a prognostication as you can imagine.

David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.