A deal to increase record OPEC+ output cuts was going smoothly. Until Saudi Arabia and Russia discovered. Just what proportion a number of their allies had been cheating.
In private conversations, Saudi Arabia Energy Minister Prince Abdulaziz bin Salman and his Russian counterpart Alexander Novak had agreed with little fanfare. On May 28 to increase boring cuts by another month. Their bosses had spoken the day before. With the 2 power players aligned. Prince Abdulaziz suggested bringing the meeting with other OPEC ministers forward, and Novak had no objection.
The cartel appeared on the brink of a deal
Then, each day later, the difficulty started. the primary OPEC output surveys, compiled by news organizations and consultants, showed that Angola, Iraq, Kazakhstan. And Nigeria wasn’t squeezing supply nearly the maximum amount as that they had promised. Baghdad was the worst offender.
Cheating is as old because the OPEC system of production quotas, which matches back to the mid-1980s. Academics call it the “free rider” problem: Someone benefits from everyone else’s effort without contributing. In OPEC, ministers call it the “Pinocchio” problem.
Saudi Arabia had long urged other members to share the burden more equitably. Russia, a long-term laggard that has now converted to strict compliance, joined the Saudis in their push. It had been as if the brief. But the vicious price competition of earlier this year had never happened.
“All altogether, mission accomplished,” said Harry Tchilinguirian, head of commodity market strategy at BNP Paribas SA. “But it might not have happened without Saudi Arabia and Russia coming together and singing from an equivalent song sheet before the meeting.”
“After the storm has passed, facilities are going to be inspected. Once all standard checks are completed, production from undamaged facilities is going to be brought back online immediately. Facilities sustaining damage may take longer to bring back online,” the BSEE continued.