The OPEC faces challenges due to non-compliance with agreements and internal tensions

The OPEC, Organization of the Petroleum Exporting Countries, has been a key player in regulating global crude oil prices for decades. However, recently it has faced difficulties in meeting production reduction agreements, which has had a significant impact on the oil market. According to an article published in The Economist, OPEC and Russia agreed to cut production by 2.2 million barrels per day until the end of June, but many cartel members have not adhered to these targets, leading to overproduction that has kept prices relatively stable since late 2023. Among the reasons for this non-compliance are reduced geopolitical tensions between Iran and Israel, the slowdown in inflation in the United States delaying a possible interest rate cut by the Federal Reserve, moderate economic growth in China, and the influx of new oil supply into the market, especially from the United States. This combination of factors has resulted in an oversupply that has led to an increase in global oil inventories, contrary to initial expectations. OPEC has implemented production cuts both mandatory, applying to all members through quotas, and voluntary, announced by a group of major producers such as Saudi Arabia, the United Arab Emirates, and Russia. However, the lack of compliance with these quotas has been evident, with countries like Iraq and Kazakhstan producing above their targets in April. Even Russia, one of the main players in the agreement, seems to prefer announcing cuts but then overproducing, possibly due to financial needs related to conflicts. In the short term, global oil demand is expected to strengthen, which could provide temporary relief to the market. Many analysts predict that Saudi Arabia and its allies will maintain production cuts for the rest of the year, which could push up crude prices by around ten dollars, according to JPMorgan Chase estimates. However, in 2025 additional challenges are expected, with additional supply entering the market from non-OPEC countries such as Canada and Argentina, which could hinder the cartel's ability to keep prices high without flooding the market. Amidst this uncertain outlook, OPEC faces internal tensions due to differences in production quota distribution, with some members arguing that current targets do not fairly reflect their production capacities. This discontent has led to internal debates on reviewing targets for 2025, with countries like Kazakhstan advocating for an increase in their quota. Distrust among members is evident, to the point that OPEC has hired Western companies to evaluate the production capacity of its members, reflecting the complexity and delicacy of negotiations within the cartel. In conclusion, OPEC faces a significant challenge in maintaining stability in oil prices in a context of overproduction and internal tensions. While short-term improvements in demand are expected to provide some relief to the market, in the medium term, the entry of new non-OPEC supply could further complicate the situation. Coordination and commitment among member countries will be crucial to address these challenges and achieve sustainable stabilization in the long-term oil market.