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Is The OPEC Deal Falling Apart?

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Is The OPEC Deal Falling Apart?

OPEC members teamed up with other energy giants like Russia to collectively lower their output in 2016 to help support oil prices. The agreement was extended in June of 2017, but now there is ample evidence to suggest the deal is falling apart.

Countries including Libya and Nigeria were exempt from the agreement, and their oil production is surging by a combined 700,000 barrels per day over the past few months. Meanwhile, Iraq had requested an exemption from the agreement so it can bring to market as much oil as possible and generated much-needed revenue to battle the terrorist group Islamic State. Even though the country agreed to abide by the agreement, the country managed just 29 percent of its pledged cuts in June.

Moreover, Kazakhstan wants to gradually exit itself completely from the OPEC agreement and plans on increasing oil production as soon as possible, a Reuters report added.

What About Saudi Arabia?

Saudi Arabia, OPEC's most notable and powerful member, reportedly increased its oil production in June from 9.88 million barrels in May to 10.07 million barrels, a separate Bloomberg report noted. This would imply the country is not abiding by the agreement, which calls on the country to lower its production by 486,000 barrels a day.

As a whole, OPEC's compliance with their proposed production cuts fell in June to its lowest levels in half a year, according to Reuters. OPEC's compliance with cuts was as high as 95 percent in May but fell to 78 percent last month.

"Each month something seems to come along to raise doubts about the pace of the rebalancing process. This month, there are two hitches: a dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement," the Paris-based IEA said.

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