The ever-shifting goalposts of OPEC+’s output quotas

by Emeline BURCKEL
The 13 members of the OPEC oil cartel and its 10 allies that make up the wider OPEC+ group convene every month to set new output quotas, but no longer adhere to them. So why do they persist in the strategy?
As the alliance held yet another video conference on Thursday, here some possible explanations:
– How long has there been a problem? –
Falling far short of its goal of pumping an additional 400,000 barrels of oil per day, OPEC+ has only managed to boost output by a meagre 10,000 barrels daily, according to calculations by Bloomberg news agency.
The alliance had agreed a policy of gradually opening its taps back in May 2021 as demand began to pick up again after the coronavirus pandemic shut down economies across the globe.
At the height of the health crisis, the 23 oil producers were stockpiling millions of barrels so as not to flood the market while demand was throttled by economic lockdowns.
The strategy paid off: crude prices, which had even fallen into negative territory in the spring of 2020, moved back up as a result.
And with calm gradually returning to the market, OPEC+ decided to progressively reopen the taps.
If individual countries at first respected their production quotas, the situation became more complicated since late 2021.
And, with exception of February 2022, the cartel missed the production quotas it set itself month after month in video conference calls that became shorter and shorter.
Prior to the Covid-19 crisis, producer countries met twice a year in OPEC’s headquarters in Vienna, Austria.
– Why isn’t OPEC+ meeting its quotas? –
The picture varies from country to country.
The worst offenders are Angola, Nigeria, Congo and Equatorial Guinea, which have difficulty in boosting output, “even seeing it fall” in some cases, said analyst, Neil Wilson.
The main reason is that “infrastructure is not where it needs to be due to low investment and there have been operational problems,” said PVM Energy analyst, Tamas Varga.
“Angola, Congo, Equatorial Guinea and Nigeria are the major underachievers due to past underinvestment and mismanagement,” he said.
And Russia was now about to join their ranks because of the sanctions imposed on it by the West over the invasion of Ukraine.
The United States and Britain have decided to ban Russian oil and gas imports and the EU said on Wednesday it would “phase out Russian supply of crude oil within six months, and refined products by the end of the year”.
Saudi Arabia and the United Arab Emirates have spare capacity, “but they would not want to jeopardise the fragile unity of the group by volunteering of filling the supply gap,” Varga said.
– Why don’t other countries make up the shortfall? –
“Producing above the permitted quotas to make up for the production loss of other countries would be chaotic,” said Swissquote analyst, Ipek Ozkardeskaya.
“Pumping more would pressure the price lower for everyone — so the countries which produce less would earn less for the same volumes,” she said.
“The daily quotas don’t make much sense if the producer countries fall repeatedly behind their target. So it is possible that OPEC will decide to abandon the daily production increase plan altogether before the official end date, which is supposed to be the end of 2022.”
XTB analyst Walid Koudmani pointed out that “it is beneficial for oil-producing countries to underproduce at times in order to maintain elevated prices, particularly as many countries are now attempting to find alternatives to Russian oil.”
And Varga concluded: “OPEC+ is eager to send out a message of unity. Suspending or terminating the agreement would imply that the organisation is in disarray.”
Agence France-Presse