Will OPEC+ Ever Rein In Its Non-Compliant Members?

OPEC and the OPEC+ group have had reasons to be happy this week as Brent oil prices topped $87 per barrel. 

But the most recent rise in oil is no thanks to the OPEC+ members that have continuously failed to comply with their production cuts. The price rally was the result of signs of strong demand and concerns about supply during the hurricane season.

The overproduction at some OPEC+ members – most notably Iraq, Kazakhstan, and Russia – continues to be an issue for the alliance, which has tentative plans to start easing part of the voluntary cuts in the fourth quarter of this year, market conditions permitting.

OPEC’s top producer and de facto leader, Saudi Arabia, seeks to lead by example and continues to stick to its pledge to pump 9 million barrels per day (bpd) of crude. But other OPEC+ producers, including OPEC’s second-largest, Iraq, haven’t complied with the current cuts despite continuously pledging they would show better discipline going forward. 

OPEC has given the cheaters until September 2025 to compensate for their overproduction in recent months. There haven’t been any signs that Iraq and Kazakhstan have managed to reduce their respective output down to their assigned quotas, let alone compensating for previous overproduction. 

The lack of compliance at some OPEC+ members signals that the years-long struggle of the group to rein in the cheaters isn’t over yet. It also sends a bearish signal to the oil market – some of the production cuts are only on paper because several producers are failing to cut output as much as they have agreed under the OPEC+ deal. 

Currently, the main culprits are OPEC’s number-two producer Iraq and non-OPEC producer Kazakhstan. 

And this is not the first time have failed to comply. 

In the 2020-2021 period, Iraq and Kazakhstan were pumping above their quotas, and they failed miserably in compensating for their overproduction a year after OPEC+ launched a compensation mechanism similar to the one it has now. The backlog of additional cuts that Iraq and Kazakhstan had to make in 2021 increased at that time, more than a year after the compensation plans were adopted, according to internal OPEC+ documents obtained by Bloomberg. 

This year, compensation plans have been prepared again for Iraq and Kazakhstan. Between January and March 2024 alone, Iraq’s cumulative overproduction stood at 602,000 barrels per day (bpd) and Kazakhstan had accumulated 389,000 bpd in overproduction, per OPEC’s estimates. 

At the June OPEC+ meeting, producers were given time until September 2025 to compensate for previous overproduction. 

Judging from the most recent production data from OPEC and from Reuters and Bloomberg surveys, neither Iraq nor Kazakhstan has managed to reduce production to the promised levels. 

The monthly Reuters survey showed this week that OPEC’s oil production rose in June for a second month in a row, due to higher output from Nigeria and Iran. The biggest decline in output came from Iraq, which reduced production by 50,000 bpd, but OPEC’s second-largest producer continued to exceed its OPEC+ quota in June. 

Iraq, which has failed to stick to its 4-million-bpd cap on production, pumped 4.195 million bpd in May—down by 7,000 bpd from April, but nearly 200,000 bpd above its target, per OPEC’s secondary sources in its latest monthly report. 

The Bloomberg survey of OPEC output in June showed that Iraq cut production by 30,000 bpd, but was still around 250,000 bpd above its quota. This is before factoring in the compensation cuts. 

Kazakhstan, for its part, raised its oil production in June, exceeding its quota, Reuters calculations based on data from sources showed this week. Kazakhstan produced 1.538 million bpd of crude last month, up from May, and about 70,000 bpd above its OPEC+ cap of 1.468 million bpd, according to Reuters calculations of output data.  Related: Courts Take Charge: Implications of SCOTUS Dismantling Chevron Deference

Kazakhstan’s Energy Ministry said in June that independent sources approved by OPEC+ found that the country had exceeded its quota under the deal by 45,000 bpd in May.

“Kazakhstan will address this overproduction and will fully comply in June, including complying with additional voluntary cuts,” the ministry said last month.

Russia also vowed to reach its oil production quota in June after exceeding its target output under the OPEC+ deal in May, its energy ministry said last month.   

While OPEC+ has started to publicly announce overproduction levels of individual members, it’s not certain that it could get cheaters that haven’t complied with the cuts for years to begin sticking to their quotas. Continued overproduction could blunt the impact of the group’s cuts on the oil market. 

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com

• Shell Expects to Book Up to $2 Billion in Writedowns in Q2
• Bullish Sentiment Has Taken Hold of the Oil Market
• Bitcoin Bulls Eye $100,000 But Political Uncertainty Looms Large