Cracks Appear in OPEC+ Facade as Kazakhstan Seeks Production Hike

Kazakhstan oil quota dispute

The OPEC+ alliance is bracing itself for yet another acid test in the next few days, as Kazakhstan, a key member from the Central Asian region, said on Tuesday that it wanted to have a bigger quota in 2025, when the currents oil output cuts expire.

Unless the members of the OPEC+ settle the dispute amicably, the group is going to face a potential test of unity, before the scheduled meeting on June 1, to discuss the next move; maintaining the oil production cuts, lifting it up or in the worst case scenario, increasing it further.

The fact the Kazakhstan move is already in the public domain shows that there is  discord  within the OPEC+ over the existing production cuts - or any further rise to shoring up the falling oil prices.

The OPEC+, on its part, meanwhile, wants to investigate current oil  output capacity in order to set what it calls, reference production levels. According to Reuters, three global companies with the relevant experience in the field, have been tasked with the analyses in this regard.

Since the report is due at the end of June, according to Reuters that cited confidential sources for information, Kazakhstan may not be able to discuss the issue in the forthcoming session on June 1.

Kazakhstan is not the only member that wants a higher quota: the UAE and Iraq are expanding their corresponding capacities. As for the UAE, it increased the production to whopping 4.85 million barrels a day, having agreed to the production cuts announced by OPEC+ last year; it, however, has been lobbying for an increased quota.

Saudi Arabia, the world's top exporter of crude oil, meanwhile, maintains its diametrically opposite position with regard to the production levels: having already scrapped plans to increase the output capacity by 1 million barrels per day(bpd), the Kingdom is not keen on increasing the production - and for an obvious reason.

Break-even prices of crude oil 2024 - IMF
According to the IMF, Saudi Arabia has to sell oil above $96.20 to make profit; as of Thursday, the price of oil was below $86 in the markets. 

As for the UAE, the same price, according to the IMF, is $56.70. That means, the UAE is still making hefty profit and in this context, its ambition to get the quota raised is understandable. In short, it is a case of making hay while the Sun shines. 

In these circumstances, the big players of the OPEC+ have been forced to perform a balancing act while addressing the issue of extending the production cuts indefinitely; since the main revenue comes from oil, the members in question are facing serious issues, when it comes to balancing the budgets. 

Even Saudi Arabia faces the same issue, especially at a time, when it has to fund ambitious infrastructure projects. Even Russia sees that an increase in production is inevitable in the near future.

The key players of the OPEC+ do not want to see a repeat of the episode involving Angola that quit the group last year over the same issue.

The nagging by Kazakhstan is not the only issue that the OPEC+ is facing at present. 

IEA oil demand forecast - 2024/25

With the release of the latest data on the global oil consumption by the IEA, International Energy Agency, it depicts a picture of losing demand for the commodity in 2024, while revising down its own figures. 

By contrast, the OPEC+ sees an increase in demand. That means, a subtle statistical battle has broken out between the IEA and the OPEC+ over the future demand. 

Not only did the IEA revise down its own forecast of demand for oil  for 2024, but also adopted a more cautious approach while making its forecasts: it takes into account the stagnating economic growth in the developing world, high inflation, progress made in the field of energy efficiency and of course, the growth of electric vehicles. 

All in all, the OPEC+ needs fresh ideas beyond the production cuts to hold the members together in order to stay relevant in the coming years. Unfortunately, there is not the slightest indication for a change in the status quo at present. 


Popular Posts

Argentinian Shale Oil Boom: is it Milei's miracle?

The latest blow to the oil and gas markets: Chinese manufacturing sector shrinks again!

Latest Energy News from EIA