OPEC+: Fall in production and tensions around quotas

OPEC+: Fall in production and tensions around quotas
OPEC+: Fall in production and tensions around quotas

In April, the combined production of OPEC+ members fell by 210,000 barrels per day, reaching 41.04 million bpd, a Platts survey by S&P Global Commodity Insights shows. The drop is mainly due to deeper production cuts implemented by Russia, which has also faced disruptions due to Ukrainian drone attacks on its refineries and flooding in its oil regions. Despite these challenges, the overall reduction appears insufficient to ease lingering tensions. They are linked to quota compliance, particularly with Russia and other members such as Iraq and Kazakhstan, which continue to produce well beyond their assigned quotas.

Impact of Outages and Compliance Issues

Russia, which moved to a deeper voluntary output cut from April, cut output by 130,000 b/d, reaching 9.29 million b/d, but fell short of its target of 9.099 million b/d. That’s the lowest level since May 2022, shortly after Russia’s invasion of Ukraine shocked energy markets. On the other hand, Saudi Arabia, co-chair of OPEC+ with Russia, continues to respect its quota, reducing its production by 10,000 b/d to 8.98 million b/d in April.

Compensation Plans and Future Outlook

Iraq and Kazakhstan, having exceeded their quotas, were forced to submit plans to compensate for their overproduction in early 2024. Overall OPEC+ compliance efforts showed production 249,000 b/d above the quota in April, with a compliance rate of 96.97%. This situation could require adjustments in compensation plans, depending on future production and OPEC+ policy decisions.

Implications for Oil Markets and the June Meeting

April’s production data will be the most recent available to OPEC+ ministers when they meet on June 1 to set production levels. Commodity Insights analysts expect the group to extend current quotas and voluntary cuts. However, price gains resulting from aggressive OPEC+ cuts have largely disappeared in recent weeks, hurt by tepid economic indicators in China, growing production in the United States and persistent pockets of inflation in major economies.
As OPEC+ continues to navigate an uncertain global economic environment, managing future production capacity and negotiating production levels remains crucial. Efforts to maintain market balance while supporting oil prices are complicated by internal and external challenges, requiring a flexible and responsive approach from the cartel.

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