OPEC+ decided to "turn off the taps"

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, gave a detailed interview to RIA Novosti about the reasons and possible consequences of the OPEC+'s decision to start increasing oil production after more than two years of constant restrictions.

– Despite all expectations, OPEC+ has decided to start increasing oil production from April. Alexey Igorevich, why, in your opinion, was such a decision made?

– Since last year, it has been noticeable that the discipline of some OPEC+ countries has become lame for various reasons. First of all, we are talking about Russia, Kazakhstan and Iraq. The price of oil in the world seems to be decreasing systematically and fluctuates around $ 70 per barrel, although last year it was at $ 80. This makes Russia think about selling more oil to maintain budget revenues. It is even more difficult for Kazakhstan to maintain quotas, as the bulk of production is provided by production sharing agreements, which are dominated by Western oil companies that are not subject to the OPEC+ deals at all. The government cannot legally influence them, so the country is able to comply with the restrictions only during the period of repairs, modernization and maintenance of production facilities.

– And what can such a decision lead to?

– OPEC+ may increase production by about 1.1 million barrels per day this year due to the gradual withdrawal from voluntary reductions. Moreover, it is possible that this figure will be lower due to the fact that Russia, Kazakhstan and Iraq have recently updated compensation schedules for oil overproduction since the beginning of 2024. They were also joined by the UAE, Saudi Arabia, Kuwait and Oman. But taking into account the experience of last year, the issue of compliance with these compensations is questionable.

Thus, I believe that the global oil supply in 2025 could potentially grow by a total of 1.8-2 million barrels per day, and it would seem that it should significantly exceed demand. But OPEC+ is also considering the effect of US President Donald Trump's policy of maximum pressure on Iran and Venezuela, which has already begun. It is now estimated that Iran's production may decrease by 250-500 thousand barrels per day, and Venezuela's by 250 thousand. And if the alliance's expectations are correct, then its decision to increase production should not lead to an imbalance in the market. Yes, there may be minor deviations from the balance sheet in one direction or another during certain periods of the year, but they will definitely not create systemic problems for the market.

– In your opinion, what is the future of OPEC+? Will it be effective in the long run?

– The alliance has been in existence for eight years, which is already a long time. And if it did not disintegrate in the early years of its existence and even during the coronavirus pandemic, which could have happened, then I do not see any prerequisites for it to cease to exist now. Moreover, it seems to me that during this time OPEC has actually ceased to operate, which no longer makes decisions separately from its OPEC+ partners. The members of the alliance see that this tool really allows you to earn more in the oil market than if everyone was on their own. And unlike the OPEC organization with strict rules and penalties, OPEC+ is a flexible mechanism where participants voluntarily and freely assume certain obligations. I think that the alliance will continue to strive to expand its membership and invite other oil-producing countries to cooperate.