OPEC+ surprise output hikes highlight fading discipline: Bousso

Reuters

04-04-2025

LONDON, April 4 - OPEC+'s surprise decision to add more oil to a well-supplied market reeling from the prospect of a global economic trade war suggests the group is struggling to keep its own house in order.
The Organization of the Petroleum Exporting Countries and its partners including Russia on Thursday held a video conference that was widely expected to be a benign event for markets. Instead, the eight key OPEC+ members caught the market off guard when announcing that the group would accelerate the planned unwinding of years-long output cuts.
OPEC+ said in a statement, opens new tab that the decision to release 411,000 barrels per day in May, the equivalent of three months of hikes under the previous plans, reflected "continuing healthy market fundamentals and the positive market outlook".
The reasoning and timing appear almost laughable, given that the announcement came as global markets and oil prices were plummeting after U.S. President Donald Trump's "Liberation Day" tariff announcement stoked concerns about a global economic slowdown.
Moreover, the International Energy Agency had forecast that the oil market would be in a supply surplus this year even before these new increases.
Brent crude oil prices lost 7% on Thursday, and the sharp slide continued on Friday after China announced retaliatory tariffs, bringing prices to $65.60 a barrel and well into lows last seen during the depths of the coronavirus pandemic. It is hard to gauge the exact impact of the OPEC+ announcement on oil prices given the broader context, but it certainly added to the bearish sentiment.
OPEC+ is set to next meet on 5 May, where it will decide on June output.
So what accounts for this bewildering OPEC+ decision and its timing? In two words, internal politics. More precisely, how to deal with members' persistent lack of compliance with production quotas. And even more specifically, Kazakhstan's lack of compliance.
The OPEC+ group has been highly effective in managing global supplies and oil prices in recent years. But lack of adherence to the group's production quotas has become a growing issue as members including Kazakhstan, the United Arab Emirates and Iraq have ramped up production capacity in violation of these limits.
The group's de-facto leader Saudi Arabia, which has implemented the deepest supply cuts, must have been particularly irritated to hear that Kazakhstan's oil and condensate output reached a record high of 2.17 million bpd in March following the start-up of the Chevron-operated giant Tengiz oilfield.
Excluding condensate, Kazakhstan's oil production increased last month to 1.88 million bpd from 1.83 million bpd in February, according to Reuters, far exceeding its OPEC+ output quota of 1.468 million bpd.
Russia may also not be too pleased with the central Asian country. Russian authorities recently closed two of the three moorings at the Black Sea port of Novorossiisk, through which Kazakhstan exports the vast majority of its crude to global markets. It is not unthinkable that Kazakhstan's growing exports were a key driver behind this action.
The output increases will be welcome in Washington, as the Trump administration has been calling for lower oil prices. And the availability of more oil could soften the blow from any potential new U.S. sanctions on Iran, including Trump's threat to impose secondary sanctions on buyers of Iranian oil. Iran exported around 1.5 million bpd in 2024, mostly to China.
The sharp declines in oil prices will certainly act as a deterrent for some laggard members, like Iraq and Kazakhstan, which require higher prices to balance national budgets. Perhaps this is Saudi's way to get back at them, although the kingdom itself requires an oil price of nearly $100 a barrel to balance its budget.
Ultimately, the decision to pump more crude oil into an over-supplied market facing massive downside risk was clearly not driven by rational economics. Instead, it likely stemmed from a desire to mask members' lack of discipline and to show the world that OPEC+ is still in control.
But with Kazakhstan and other members blatantly ignoring their commitments, this episode only highlights how much the group of producers is struggling to maintain control of its narrative.
** The opinions expressed here are those of the author, a columnist for Reuters **
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