OPEC+ members have been reducing their combined oil production for the past three years in an attempt to push crude prices higher. This strategy has helped keep prices above $90 a barrel for most of 2022. However, with weak demand growth and increased output from other regions, these cuts have become less effective over time.
In response, the Saudi Arabia-led group began scaling back some of the cuts starting this month. The decision comes amid rising tensions between Saudi Arabia, which has shouldered the bulk of the cuts, and other members such as Kazakhstan, Iraq, and the United Arab Emirates, who have been exceeding their production quotas.
Last week, OPEC unveiled a new plan that requires some members to compensate for past overproduction through additional cuts in the future. However, traders remain doubtful about how fully members will comply.
Kazakhstan’s energy minister, Erlan Akkenzhenov, said on Wednesday that the country would attempt to adjust its production in line with the OPEC+ plans, but emphasized that Kazakhstan would act in its own national interests. He added that the country has limited control over international oil companies that dominate its oil production.
“If our partners are not satisfied with our actions, we will act according to our national interests, with all the ensuing consequences,” Akkenzhenov told Reuters.
Both the energy ministries of Kazakhstan and Saudi Arabia have not responded to requests for comment.
Further complicating the situation, some OPEC+ members have discussed increasing oil output in June by a similar amount as the 411,000 barrels per day boost planned for May. This increase in supply comes amid the trade tensions caused by U.S. President Donald Trump’s tariffs, which threaten to slow global trade and economic growth.
The International Energy Agency (IEA) has revised its oil demand growth forecast for this year, cutting it by about a third from 1.03 million barrels per day (bpd) to 730,000 bpd. The IEA also signaled that further downward revisions could occur depending on the progression of Trump’s tariff policies.
Oil prices dropped more than 2% on Wednesday as traders reacted to the possibility that OPEC+ might accelerate production increases in June. In early April, eight OPEC+ members, including Saudi Arabia and Russia, surprised the market by announcing plans to raise output in May by 411,000 bpd, much higher than the original target of 122,000 bpd.
When OPEC+ members meet again on May 5 to set output targets for June, Saudi Arabia is expected to push for a similar increase in production, according to two sources familiar with the matter. However, no final decision has been made yet.
As of Wednesday afternoon, Brent crude, the global benchmark, was down 2.4%, while U.S. West Texas Intermediate (WTI) was 2.7% lower.
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