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(Bloomberg) — OPEC+’s audacious bid to punish its oil-quota cheats prompted a renewed plunge in crude on Wednesday, as growing tensions with Kazakhstan stoked fears of an escalating price war.
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Oil markets have been jittery since early April, when the producers’ group led by Saudi Arabia stunned traders by accelerating the revival in its output. This was an apparent effort to discipline over-producing members by driving down prices, yet Kazakhstan — the greatest offender — has continued to pump as usual at its biggest fields.
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Energy Minister Erlan Akkenzhenov appeared on Wednesday to reject pressure to bring Kazakhstan’s output in line with its quota, saying the nation is unable to make significant cuts and would prioritize national interests over OPEC+ obligations.
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Other OPEC+ members threatened to hit back, with Reuters reporting that several nations will seek another bumper supply hike for June. A later statement from Kazakhstan’s Energy Ministry, saying it was fulfilling its OPEC+ obligations and seeking “mutually acceptable solutions” to its oil production management, did nothing to reverse the rout.
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Analysts warned of the growing risk that the cartel’s internal spat would exacerbate a global oil surplus and worsen an already bearish outlook. As of 1:45 p.m. in New York, US crude futures were down almost 3% near $62 a barrel.
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“The ‘Kazakhstan-first position’ increases the odds of another accelerated voluntary production increase come June,” said Helima Croft, RBC’s head of commodities strategy. It “makes the May ministerial a must-watch event.”
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The Organization of the Petroleum Exporting Countries and its partners will hold a video conference on May 5 to decide what to do in June. The default option is a modest monthly output addition of 138,000 barrels a day, in line with its long-term plan. Another super-sized hike of 411,000 barrels a day, equivalent to three monthly increases in one, would signal an escalation of internal tensions and risk a renewed selloff in crude futures.
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Brent crude, the international benchmark, briefly plunged below $60 a barrel earlier this month after the cartel announced its shock supply increase for May. The move was unveiled just hours after President Donald Trump launched a trade war against China and other major nations.
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Crude is now below the level many OPEC+ members, including Saudi Arabia, need to balance their government budgets. Yet if quota compliance doesn’t improve, the group may indeed approve another bumper increase, according to consultant Energy Aspects Ltd.
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“Patience is running thin, but the Saudis are reluctant to flood market knowing how hard it is to clean it up later,” said Gary Ross, chief executive officer of Black Gold Investors LLC, and for years a close observer of OPEC politics. “This is the dilemma.”
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OPEC+ delegates, who asked not to be identified, said the group hasn’t yet formally discussed its plans for June. One predicted they would opt for the smaller hike, while another said all options could be up for discussion.
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Whatever they decide could have major ramifications for OPEC+, a nine-year partnership between the Saudis and former rivals including Russia.
https://financialpost.com/pmn/business-pmn/opec-tensions-with-kazakhstan-boil-over-sending-oil-price-lower
