The Organization of the Petroleum Exporting Countries and allies are once again faced with a difficult choice next week–extend production cuts or increase its own market share.
The decision comes ahead of the cartel’s planned oil production increase from April after months of extending its voluntary output cuts of 2.2 million barrels per day.
The voluntary production cuts are scheduled to expire at the end of March.
Recent market chatter has suggested that OPEC+ may be interested in extending its voluntary output cuts beyond March.
After briefly rising above $80 per barrel in January, Brent crude oil prices have fallen back to low $70 a barrel.
The decline has been attributed to US President Donald Trump’s tariff announcements and his call for an increase in supply by OPEC.
Kazakhstan production
This week, oil prices have fallen further due to possible increasing production from Kazakhstan.
The Kazakh energy minister said that crude oil production is set to increase by almost 10% to 96.2 million tons this year.
“This corresponds to a daily production of 1.93 million barrels,” Carsten Fritsch, commodity analyst at Commerzbank AG, said.
More supply from OPEC, starting April is likely to weigh further on oil prices.
However, according to Commerzbank AG, it would be difficult for Kazakhstan to sharply increase its output.
As part of the OPEC+ agreement, Kazakhstan has committed to limiting crude oil production to a maximum of 1.47 million barrels per day, according to the German bank.
“The other OPEC+ countries are unlikely to accept a significant overshoot of this target,” Fritsch said.
Otherwise, other countries with spare production capacity, such as Iraq or the United Arab Emirates, could also claim higher production for themselves.
Non-OPEC supply rising
The International Energy Agency has forecast that countries outside of the OPEC+ alliance are likely to pump oil at a faster rate in 2025.
According to the Paris-based energy watchdog, non-OPEC oil supply is likely to increase by 1.5 million barrels per day this year.
This is higher than IEA’s forecast of global demand growth of 1.1 million barrels a day in 2025.
Source: Commerzbank Research
Total oil supply is likely to rise by 1.6 million barrels per day this year, which puts the overall oversupply around 500,000 barrels per day or crude.
In such a scenario, adding more barrels to the market from April may not be in OPEC’s interest, according to experts.
Production cuts
The OPEC+ meeting on December 5, 2024, resulted in a decision to gradually reverse the existing production cuts over an 18-month period.
This decision translates to a planned monthly increase in production of approximately 120,000 barrels per day from April.
This measured approach aims to stabilise the oil market by steadily increasing supply while monitoring global demand and price trends.
However, Russian Deputy Prime Minister Novak said that a possible postponement had not yet been discussed earlier in February.
“There are apparently doubts within OPEC+ as to whether the market can absorb the additional supply without risking a further fall in prices,” Fritsch said.
“Any delay would lead to a change in the oil balance, leaving the market relatively tighter than we expected,” analysts at ING Group, said in a report.
On top of the 2.2 million barrels a day voluntary production cuts, the cartel is also observing another 3.65 million barrels per day of output cuts, which will expire at the end of 2026.
Trump and OPEC
After taking office for his second term as president, Trump had called on OPEC to increase oil supply.
This would achieve lower prices and also reduce Russia’s revenue from exports, which is currently being used by Moscow to finance its war against Ukraine.
However, there has not been any official comment from OPEC+ regarding Trump’s demands.
“If the major producers agree to a further three-month delay — which would open up the possibility of discussing the matter at the next regular OPEC meeting at the end of May — this should boost the oil price,” Fritsch said.
After all, OPEC would be signalling once again that stabilising the oil price is more important than increasing its own market share.
But, this would most likely strain the relationship between OPEC and Washington in the longer term, experts said.
“Any delay would also likely not go down well with President Trump, who’s calling on OPEC+ to increase supply,” ING analysts added.
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