KEY POINTS
- The OPEC+ oil output hike targets poor compliance by members.
- Saudi Arabia aims to protect oil prices and regain control.
- A 2.2 million bpd boost is likely by November.
By November, OPEC+ might reach 2.2 million barrels per day as Saudi Arabia presses for members to comply more strictly.
OPEC+ oil output hike targets quota violators
According to five OPEC+ sources, the action is intended to penalize nations such as Kazakhstan and Iraq for exceeding their agreed-upon production targets.
Despite declining global oil prices and sluggish demand signs, OPEC+ shocked investors in April by announcing a significant increase in output for May.
According to reports, Saudi Arabia, the de facto leader of the group, took the initiative in deciding to stop supporting markets because of low member compliance.
Days before U.S. President Joe Biden is scheduled to travel to Saudi Arabia for high-level negotiations, this tactical shift takes place.
In order to combat rising gas costs and persistent inflation pressures in the US, Biden has encouraged OPEC+ to increase oil supply.
After five years of output balancing and production constraint, Riyadh’s new stance favors market share expansion, signaling a change in priorities.
In order to stabilize prices, the Organization of the Petroleum Exporting Countries and non-OPEC partners like Russia joined together to form OPEC+.
To support prices, OPEC+ is currently cutting production by over 5 million barrels per day, or roughly 5% of the world’s oil consumption.
Since 2022, these cuts have been implemented gradually, and the majority are expected to last until at least the end of 2026.
The group announced in December that by September 2026, 2.2 million barrels per day of voluntary cutbacks will be phased out.
OPEC+ oil output hike may extend past July
According to Reuters, if compliance doesn’t improve, OPEC+ may continue to raise prices and release an additional 411,000 barrels per day in July.
Saudi Arabia warned again that quota violations could result in additional hikes through October if members do not comply.
The voluntary part of the cuts could be removed by November if Kazakhstan, Iraq, and other countries fail to implement the planned compensation reductions.
Despite a 3% decline, Kazakhstan’s April output surpassed its target, with its energy minister pointing to domestic interests rather than OPEC+ objectives.
A four-year low was reached in April when oil prices dropped below $60 due to concerns about a global slowdown stoked by U.S. tariffs and increase announcements.
Giovanni Staunovo, an analyst at UBS, said that until output discipline is reinstated and OPEC+ compliance improves, oil prices would continue to be pressured.
