In the spring, when it was apparent that something had to be done, OPEC and the OPEC+ countries consented to implementing production cuts. And Russia and OPEC managed to set aside the price war they had begun in consideration of the global good. It was agreed way back then that the OPEC+ countries would reduce their production by roughly 10 million barrels per day (bpd). Russia agreed to cut its crude oil production by 2 million bpd, or 19% of what their production levels were in February of this year.
Compliance has not been 100%. Some countries, particularly Iraq, had not been cutting as they should have. To keep production near the promised levels, Saudi Arabia had been cutting their production even more. That seems to be at an end. And every country is now going to have to adhere to their designated production levels.
UAE, the first domino to fall away?
The United Arab Emirates (UAE) is rumored to be considering leaving OPEC. Nothing official has been announced, but there are rumblings behind the scenes. Some of the contention seems to have to do with oil production cut discrepancies among the OPEC and OPEC+ countries.
The production cuts did seem to help earlier in the year, bringing prices from below zero up to around $40 a barrel. It has since stagnated, and there are questions about whether or not prices will continue to remain where they are. With the new wave of COVID cases spiking around the world and governments re-implementing lockdowns, and with the possibility of Libya beginning to produce more, a break up of OPEC could be disastrous.
If the UAE does indeed decide to leave, other countries will likely follow. The UAE has long been loyal to OPEC, and their leaving would put OPEC on shaky ground. The departing countries would most likely make an effort to make up for lost production, the market would again be flooded, and prices would plummet.