OPEC+ is calling on member nations to rectify their quota violations.
This push comes as crude prices soar to near $87 a barrel in London, presenting a crucial juncture for the coalition.
Iraq and Kazakhstan, significant players within the OPEC+ alliance, have pledged to implement additional production cuts to compensate for their previous overproduction.
However, recent production estimates indicate these commitments have yet to be honored.
Internal documents from OPEC+ committees, obtained by Bloomberg, reveal a history of poor compliance with compensation cuts, further complicating current efforts.
The mechanism for compensating overproduction, introduced in mid-2020, was designed to ensure member nations adhered to their assigned quotas.
Yet, this system has rarely been fully implemented. In 2021, for example, Iraq’s backlog of overdue cuts remained largely unchanged, and Gabon’s excess production debt grew significantly.
Saudi Energy Minister Prince Abdulaziz bin Salman emphasized the importance of these compensation cuts, stating, “We need it, and we need it badly,” following the latest OPEC+ meeting on June 2.
The Saudi minister’s remarks highlight the critical role these measures play in the coalition’s strategy to maintain market stability.
Despite the pledges, both Iraq and Kazakhstan have continued to exceed their production limits. In May, Iraq produced 195,000 barrels per day above its target, while Kazakhstan’s output was 43,000 barrels per day over its quota.
These figures underscore the ongoing challenge of enforcing compliance within the group.
Historically, there have been instances where countries like the United Arab Emirates have swiftly addressed their overproduction following public reprimands from leading members like Saudi Arabia.
However, these examples are exceptions rather than the norm. Analysts like Tamas Varga from PVM Oil Associates Ltd. express skepticism, noting that “hard evidence would be needed for the market to be convinced that amends have actually been made.”
The struggle to enforce compliance has significant implications for the oil market. While excess production may offer temporary relief for consumers, it threatens vital revenue streams for OPEC+ nations.
This delicate balance underscores the importance of strict adherence to agreed-upon production limits.
Russia, another key member of OPEC+, has also pledged compensation but has yet to submit a detailed schedule of its planned cuts.
Although Russia curtailed output in May, it still exceeded its quota by 133,000 barrels per day, according to OPEC data.
OPEC+ continues to grapple with enforcing discipline among its members. The coalition’s latest plans, extending the compensation period to the third quarter of 2025, aim to distribute the required cuts over a longer timeframe, potentially making compliance more manageable.
However, the lack of immediate action remains a concern.
As OPEC+ moves forward, the group’s ability to enforce production quotas will be crucial in maintaining market stability and supporting oil prices.
The ongoing efforts to address these challenges reflect the high stakes involved in managing global oil supply and demand.