Anarchy in OPEC undermines Russia’s desire to raise oil prices
4 July 2024 15:39
OPEC, the expanded organisation of the OPEC oil cartel, is beginning to stall and fail to cope with the tasks for which it was created. This is stated in the material of Bloomberg, according to "Komersant Ukrainian"
In particular, it means that OPEC members, in particular Iraq and Kazakhstan, which previously exceeded their oil production quotas, now have to compensate for this by cutting production. However, it seems that these countries are in no hurry to fulfil their obligations.
According to Bloomberg, internal OPEC documents show that member countries had low rates of compensation for excess production during previous rounds of cuts in 2021. This poses some obstacles to the rise in oil prices, which recently reached a two-month high of around $87 per barrel.
A mechanism to compensate for overproduction was introduced in mid-2020, but has rarely been followed. For example, Iraq’s debt for additional cuts remained almost unchanged during 2021, and Gabon’s debt increased so much that the country would have to completely stop production for two months to compensate.
Despite Iraq and Kazakhstan’s promises to adhere to their quotas and implement additional cuts, the latest data suggests that they have not even begun to do so. In May, Iraq was producing about 195,000 barrels per day more than its quota, and Kazakhstan 43,000 barrels per day more than its quota.
Russia, which together with Saudi Arabia heads OPEC, has also pledged to make compensatory cuts, but has not yet published a schedule of additional cuts. Meanwhile, Russian oil exports have reached their highest level since May, and Russia’s oil revenues continue to grow,
Experts point out that even if the compensatory cuts are not implemented, the principle itself could be beneficial for OPEC. Since the introduction of the offset system in mid-2020, countries such as Iraq and Nigeria have shown better discipline in adhering to their initial quotas, even if they have not made additional cuts.
OPEC recently agreed on supply management plans through to the end of 2025 and extended the offsetting period to the third quarter of that year. This may allow additional cuts to be divided into smaller parts that are easier for member countries to implement, although they will be less visible to the global oil market.
The situation remains tense, and the market is waiting for concrete evidence that OPEC member countries are actually fulfilling their obligations to make compensatory cuts.
OPEC
OPEC is an extended group of oil-producing countries that includes members of the Organisation of the Petroleum Exporting Countries (OPEC) and a number of other non-OPEC countries. This coalition was formed in late 2016 to coordinate actions to regulate the global oil market.
OPEC is made up of 13 OPEC member countries, including Saudi Arabia, Iraq, Iran, Kuwait, Venezuela and others, as well as 10 non-OPEC countries, including Russia, Kazakhstan, Azerbaijan and Mexico. Together, these countries control about half of the world’s oil production.
The main goal of OPEC is to stabilise oil prices by regulating production volumes. The member countries meet regularly to discuss the market situation and make decisions on oil production quotas. These decisions can include both production cuts and increases, depending on current market conditions.
OPEC plays a significant role in shaping the global oil market. The group’s decisions can have a significant impact on global oil prices, which in turn affects the economies of many countries, both oil producers and consumers.
However, OPEC’s activities are not without challenges. Disagreements often arise between member countries over production levels and pricing policies. In addition, some members of the group do not always adhere to the established quotas, which can undermine the effectiveness of joint decisions.
Despite these challenges, OPEC remains an influential player in the global oil market. The Group continues to adapt to changes in the global energy landscape, including the growth of shale oil production in the US and the global shift to renewable energy sources.
