OPEC+ Faces Uphill Battle In Oil Supply Discipline
(MENAFN- The Rio Times) OPEC+ aims to stabilize oil prices by enforcing supply quotas. Yet, some members, like Iraq and Kazakhstan, are not keeping up, threatening the balance of global oil economics.
These countries have pledged to slash production to compensate for previous overproduction. Still, recent data shows no action has been taken toward these promises.
Bloomberg accessed OPEC+ internal documents, revealing a consistent shortfall in managing overproduction.
This issue is critical, as oil prices have recently peaked at around $87 per barrel in London.
Excessive supply could lower consumer prices but risk the revenue streams vital to oil-dependent nations, especially those influenced by Saudi leadership.
Compensatory cuts form a key strategy component, as stressed by Saudi Energy Minister Prince Abdulaziz bin Salman during the OPEC+ June meeting.
However, the track record since mid-2020 shows these directives are often overlooked.
For example, Gabon's failure was so severe that it would have required a complete halt in production for two months to balance out.
On rare occasions, countries like the UAE have quickly addressed overproduction, spurred by Saudi reprimands.
Yet, these instances are exceptions. Analyst Tamas Varga from PVM Oil Associates emphasizes the need for tangible proof before the market trusts any claimed adjustments.
OPEC+ Compliance Challenges
In 2024, both Iraq and Kazakhstan vowed to adhere to reduced production levels to compensate for the year's start.
As of May, neither has met their revised targets. Iraq pumped 195,000 barrels per day over its limit, while Kazakhstan exceeded its target by 43,000 barrels daily.
Iraq faces internal pressures, needing funds to recover from conflict. Meanwhile, Kazakhstan seeks to profit from projects such as the Chevron-led Tengiz oilfield.
Despite commitments to OPEC+, their actions fall short. Russia, also an OPEC+ leader alongside Saudi Arabia, has made promises of cutbacks but hasn't detailed these plans.
Despite reducing its output, Russia still exceeded its quota by 133,000 barrels daily in May.
The principle of compensatory cuts, introduced in 2020, has helped enforce discipline in some countries.
Transparent scheduling could make overproduction a diplomatic discomfort, as per Paul Horsnell from Standard Chartered.
OPEC+ recently planned to manage oil supplies until 2025, aiming to make quota compliance less burdensome but still effective.
This approach allows for gradual adjustments that could stabilize markets without drastic fluctuations.
If countries currently lagging do not step up, OPEC+ may limit their production growth in the coming months to maintain market equilibrium.
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