Iraq, Russia and Kazakhstan submit OPEC+ compensation plans

Iraq, Russia and Kazakhstan, the OPEC+ alliance's biggest overproducers, agreed July 24 to gradually reduce production by a collective 2.284 million b/d between now and September 2025, OPEC said in a statement.

The producer group said Iraq, Russia and Kazakhstan had produced above their output targets by 1.184 million b/d, 480,000 b/d and 620,000 b/d, respectively, during the first six months of 2024, according to assessments by secondary sources, which include the Platts OPEC+ Survey from S&P Global Commodity Insights.

A lack of quota compliance by OPEC+ members threatens the alliance's ability to shore up the oil market following months of geopolitical tensions, sticky inflation worldwide and disappointing demand in China, the world's biggest crude consumer.

As a result, the three countries will trim output by varying amounts on a monthly basis, according to a table issued by OPEC, to compensate through September 2025. Iraq and Kazakhstan will begin in July with 70,000 b/d and 18,000 b/d, respectively, while Russian cuts will begin in October.

The Platts OPEC+ Survey found Iraq produced 4.22 million b/d in June, against its quota of 4 million b/d. Russia pumped 9.10 million b/d (quota 8.978 million b/d) and Kazakhstan produced 1.54 million b/d (quota 1.468 million b/d) in the month.

Overproducers were originally given a deadline of the end of June to submit compensation plans, but the deadline came and went. Representatives from the three nations have engaged directly with secondary sources in recent weeks.

Russia's Deputy Prime Minister and lead OPEC+ negotiator Alexander Novak said July 23 that Russia had almost reached its production target.

Russia is compensating for overproduction in the second quarter of 2024, when it pledged to implement deeper cuts, bringing its quota in line with Saudi Arabia's.

For technical reasons, Russian producers have more flexibility to increase or decrease production in the summer months. The plan does not include compensate cuts in summer 2024.

In a statement, the Russian Energy Ministry said that Russia remains fully committed to the OPEC+ agreement. "Russia will resolve the issue of overproduction and fully comply with the requirements in July," it said.

Meanwhile, Iraq has blamed high production estimates on its Kurdistan region, over which the government in Baghdad has little control. Commodity Insights estimates current Kurdish output at roughly 250,000 b/d.

"Iraq accounts for the largest share of the compensatory cuts. But Baghdad does not have oversight over production in the Kurdish Regional Government -- and has limited visibility over how much is even produced there," said Jim Burkhard, Commodity Insights' vice president, oil markets, energy and mobility. "Unless KRG output is cut, then Iraqi federal production will have to be cut further. This would be a real challenge."

Overlapping cuts

OPEC and its Russia-led allies are engaged in a series of overlapping production cuts amounting to around 5.8 million b/d of crude.

Iraq, Russia and Kazakhstan are part of a small coterie implementing 2.2 million b/d of voluntary cuts, which the OPEC+ alliance could start gradually rolling back in October, subject to market conditions, following a deal hashed out at the last OPEC+ meeting in June, in which the voluntary cutters met in person in Riyadh.

It is not clear how the compensation plans would factor into a loosening of the voluntary cuts in October, but Burkhard said they could be a factor in those discussions.

"Higher quotas would help Russia, Iraq and Kazakhstan to satisfy 'compensation' cuts announced on July 24," he said. "In other words, the compensation plans could add momentum to the push for higher output."

A further 3.6 million b/d of group-wide cuts were rolled over until the end of 2025 at June's meeting.

The widespread cuts, alongside ongoing Middle East tensions stemming from the Israel-Hamas war and substantial crude inventory draws, particularly in the US, have supported prices in recent weeks.

Platts, part of Commodity Insights, last assessed Dated Brent at $82.09/b on July 23, having risen roughly $8/b since early June.

The next gathering of the joint ministerial monitoring committee, which oversees the OPEC+ agreement, is due to take place on Aug. 1.