Opec heavyweights are cheating on their targets

livemint.com:

death of Iran’s president and the escalating war in Gaza, prices of Brent crude, the global benchmark, have stayed within $2 of $82 a barrel since the start of May. Part of the reason why OPEC is failing to keep prices high is because its members are failing to keep to their output targets. In March the group’s leaders and Russia extended production cuts, vowing a reduction of 2.2m barrels a day (b/d), or 2% of global supply, until the end of June, on top of 3.7m b/d of previously agreed cuts for 2024.

Yet the cartel is now overproducing so much that its daily output in 2024 is little changed from the last quarter of 2023. This will create tensions when members get together to decide their strategy at OPEC’s ministerial meeting on June 2nd. Cheapish oil reflects other factors, too.

Tensions between Iran and Israel are cooling, which has reduced the risk premium that prompted price spikes in April. Inflation is falling too slowly for America’s Federal Reserve to cut interest rates soon, even as the country’s economy decelerates. Chinese growth remains tepid.

And new supply is coming on to the market from outside OPEC, especially America, which is pumping record amounts. But OPEC’s surprisingly strong output is also helping things along. For most of the past two years the alliance has produced less than the total allowed by its quotas.

That changed in January, when the newest cuts were implemented. Since then the cartel and its partners have overshot their target every month. In April the excess neared half a million b/d—a level last seen three years ago.