Kazakhstan has long been viewed as a “rogue” member of OPEC+. The country frequently produces more oil than allowed by the group’s output agreement. Recent reports suggest Kazakhstan has done this once again, potentially increasing friction within OPEC+.
This week, Reuters reported that Kazakhstan’s largest oil field, Tengiz, has achieved record production levels this month. Unnamed sources indicated that Tengiz is now producing 699,999 barrels of oil daily.
This news follows a previous report from last week, which also cited unnamed sources. They stated that Kazakhstan’s total oil production in September was 10% higher than the average in August, exceeding its OPEC+ quota. This increase came despite Kazakhstan submitting a plan to address its overproduction to the OPEC secretariat in July.
In July, Kazakhstan acknowledged overproducing by 620,000 barrels per day. While this figure is smaller than Iraq’s excess of 1.1 million barrels, it still upset other OPEC+ members. The plan was to make up for this excess with cuts in production until September next year. However, if the recent reports are accurate, Kazakhstan is failing to meet this commitment, and oil prices remain stagnant. The situation could worsen.
At the end of September, the Financial Times reported, based on unnamed sources, that Saudi Arabia was ready to abandon its goal of unofficially maintaining oil prices at $100 per barrel for Brent crude. This move was seen as a warning ahead of a planned increase in Saudi oil production starting December 1. If this occurs, oil prices may fall significantly, affecting all OPEC members negatively.
This ongoing issue highlights the challenges OPEC and OPEC+ face in implementing production cuts. Some members, like Iraq and Kazakhstan, prioritize immediate market share and higher exports. In contrast, countries like Saudi Arabia focus more on long-term prices, often sacrificing market share to maintain these prices.
If overproduction continues—especially from key OPEC+ partner Russia—Saudi Arabia may find it reasonable to increase its output. Such a decision could further escalate tensions within OPEC and OPEC+.
The primary purpose of forming the OPEC+ alliance was to enhance price-setting power in the global oil market by managing supply and demand. If the alliance falls apart, it risks diminishing this power, resulting in a free-for-all situation that would not benefit any OPEC producer. This concern is particularly relevant in today’s trading environment, where algorithmic trading often overlooks fundamental oil dynamics in favor of factors like the Chinese economy or geopolitical issues.
Looking ahead, Kazakhstan’s oil production is expected to comply with its quota in October. According to Reuters, the Kashagan field will undergo maintenance, leading to a 400,000 barrels per day reduction in total output, aligning the country with OPEC expectations. However, once maintenance ends in December, Kazakhstan will face a critical decision: prioritize market share or maintain cooperation with OPEC+. This decision is not unique to Kazakhstan; Saudi Arabia’s increasing production could lead to significant price drops unless there are major disruptions in production elsewhere.
You Might Be Interested In