Saudi Arabia's Protest Against 'Weak' Compliance by Some OPEC Members

On Monday, August 2, Saudi Arabia announced that the Organization of the Petroleum Exporting Countries (OPEC) would urgently address the issue of 'weak compliance with production cut commitments' by some members of the organization, as well as the increase in oil production by Nigeria and Libya, which are exempt from the production cut program. According to Reuters, OPEC and several non-member oil-producing countries, led by Russia, had agreed to reduce oil production by 1.8 million barrels per day from January 2017 until the end of March. However, Libya and Nigeria were exempted from this rule to stabilize their struggling economies. This agreement raised oil prices to over $58 per barrel in January, but since then prices have fluctuated between $45 and $50 due to prolonged efforts to reduce global inventories. The increase in U.S. shale oil production has also negated the impact of OPEC's production cuts. Saudi Arabia, Russia, Kuwait, Venezuela, Algeria, and Oman are members of the monitoring committee overseeing the agreement between OPEC and non-OPEC countries. This committee is responsible for recommending actions to other producers based on market conditions. According to Khalid al-Falih, Saudi Arabia's Minister of Oil, weak compliance with production cut commitments by some OPEC members and increased exports from the organization have affected price reductions. The report states that Saudi Arabia and Kuwait have reduced their production more than their commitments, but others, including the United Arab Emirates and Iraq, show little willingness to comply. Al-Falih noted that while commitment to the production cut agreement is currently high, the lagging behind of some countries from program targets has raised concerns that need to be addressed seriously. Alexander Novak, Russia's Minister of Energy, stated on Sunday, July 23, that due to a significant increase in oil production in recent months, Libya and Nigeria have reached a point where their production must be limited. He mentioned that the issue of increased production in Libya and Nigeria will be examined within the framework of global supply and demand patterns. He predicted that, similar to this year, daily demand would increase by between 1.4 million and 1.6 million barrels next year, thus compensating for the increase in U.S. shale oil production. Libya's current production is about one million barrels per day, which is below its production capacity of 1.4 million to 1.6 million barrels but close to production records since the unrest began in 2011. Nigeria has also increased its oil production. The total production of these two countries has increased by between 700,000 and 800,000 barrels per day since the OPEC agreement. Mohammad Barkindo, OPEC's Secretary-General, stated that the market's path to balance will accelerate demand growth in the second half of the year. Russia and Saudi Arabia are under pressure to increase prices. In Russia, which is heavily dependent on oil revenues, presidential elections will be held next year. Saudi Arabia is also planning to sell shares of its state oil company Aramco next year, thus needing higher prices. The country has been facing budget deficit issues for years.