OPEC+ committee meets as output cut policy finally boosts prices

OPEC and its allies are expected to stay the course on their deep output cuts when a key advisory committee meets April 3, but the group faces growing stress from rival producers and attacks on oil infrastructure in Russia and the Middle East.

Meanwhile, internally, the OPEC+ alliance is challenged by significant quota noncompliance from Iraq and Kazakhstan, undermining the group's efforts to buttress the crude market against an unsteady global economic outlook.

Those topics are likely to be top of the agenda at the Joint Ministerial Monitoring Committee's virtual meeting, delegates said, even as some pressure for action has been eased by an uptick in prices since the start of the year.

Platts assessed Dated Brent at $85.09/b on March 26, up from $82.28 on Nov. 29 – the day before several OPEC+ producers announced voluntary cuts for the first quarter. Platts is part of S&P Global Commodity Insights.

"If OPEC+ wants to keep prices above $80/b, they need to maintain their cuts under existing market conditions," Carole Nakhle, CEO of Crystol Energy said.

In early March all members with voluntary production cuts announced extensions until the end of June, with Russia pledging to transition to a cut in crude production, rather than a cut in the export of crude and refined products, which should bring its output on par with Saud Arabia's by June.

"There are no particular expectations for this meeting, and no recommendations will be made afterward. At this stage, there is no justification to question this decision," one delegate said.

Some analysts expect the group to further extend the cuts, with S&P Global forecasting the group will keep their cuts in place until the end of the year.

Compliance concerns

OPEC+ faces potential disagreements over producers in the group's compliance with quotas. In February several major producers including Iraq, the UAE, Kuwait and Kazakhstan produced over quota.

Iraq and Kazakhstan have already announced plans to compensate for their overproduction.

The Iraqi Oil Ministry said March 18 that it will cut exports to 3.3 million b/d – around 134,000 b/d below February levels – until the end of June.

Iraq produced 4.27 million b/d in February compared to a quota of 4 million b/d.

Meanwhile Kazakhstan pumped 92,000 b/d above its quota in February. It has not yet given details on how its compensation will be implemented.

The two largest producers in the group Russia and Saudi Arabia both produced within quota.

Russian output will be closely scrutinized in the second quarter as it transitions from supply cuts to output cuts.

Compliance and quota levels have been a major source of disagreement within OPEC+ in the past, most recently resulting in Angola leaving the group from the beginning of 2024.

Plans to adjust quota baselines based on current capacity as estimated by external sources later this year could cause further friction.

OPEC+ is also contending with growing non-OPEC supply, particularly in the Americas. Crude production in the US has surged in response to OPEC+'s major production cuts, and the gap between US production and output in Saudi Arabia and Russia is expected to widen throughout 2024.

"Non-OPEC crude is absolutely a concern and one of the reasons why we have seen such milquetoast market reaction to regional security threats from the Red Sea and MENA region," said Karen Young, senior research scholar at the Center on Global Energy Policy at Columbia University.

Infrastructure attacks

Security continues to be a major concern for the group, with attacks linked to conflicts in Ukraine and the Middle East posing a major threat to production and supply infrastructure.

Russia is grappling with regular attacks by Ukraine that have targeted refineries in Western Russia since mid-January.

S&P Global Commodity Insights estimates the attacks have taken around 1.3 million b/d of processing capacity offline since the start of the year.

"What remains to be seen is whether downstream capacity outages in Russia will result in crude shut-ins -- playing to their incremental voluntary cut [under the OPEC+ agreement] of 471,000 b/d by June -- or shuffled into more crude exports at the expense of diesel and fuel oil flows," S&P Global Commodity Insights oil analysts said.

The next full OPEC+ ministerial meeting is currently scheduled for June 1 in Vienna.