OPEC+ Meeting in Vienna: Reassessing Production Capacity and 2027 Outlook

OPEC+ Reassesses Production Capacity in Vienna: A Look at 2027 Targets

OPEC+ representatives from the 22-nation alliance are gathering in Vienna this week for preliminary discussions on updating the procedure for estimating member countries' production capacity. The move aims to lay the groundwork for new capacity assessments, which will then be used to determine new production baselines, and consequently, set production targets for 2027.

According to sources familiar with the matter, during the meeting scheduled for September 18-19, delegates hope to reach a consensus on the mechanism by which each member state's maximum sustainable crude oil production capacity will be assessed. The secretariat aims to present viable proposals to OPEC+ ministers by the end of the year.

Data from the International Energy Agency (IEA) indicates that the maximum sustainable production capacity of OPEC+ plus Mexico stands at 47.9 million barrels per day (bpd). In contrast, data from third-party institutions like Argus suggests that the alliance's crude oil production in August increased by 509,000 bpd to 42.4 million bpd.

Delays and Internal Challenges

Originally, the new production baselines were scheduled to be implemented in 2025, but internal disagreements over the assessment process, including the potential role of independent consulting firms such as Rystad Energy, Wood Mackenzie, and IHS, led to the plan being postponed to 2026 and then 2027.

Even if OPEC+ manages to agree on a new framework for assessing production capacity, significant challenges remain in its implementation. Member states like Iraq and Nigeria have demanded increases in their baselines, but it is unclear whether these demands reflect genuine increases in production capacity. In another development, Angola withdrew from OPEC earlier this year due to receiving a lower-than-expected 2024 production target.

Spare Capacity and Compliance

Recently, OPEC+'s spare capacity has become a focal point for the market, particularly as eight core member countries gradually ease large-scale production cuts. However, there are doubts about the ability of countries like Russia and Iraq to return to pre-cut production levels in the coming months due to constraints on upstream and midstream facilities.

OPEC has been steadily increasing production since April, and by September, the initial 2.5 million bpd cuts had been fully reversed, equivalent to around 2.4% of global demand. This trend is set to continue with the latest production policy for October, which involves lifting the second batch of production cuts more than a year earlier than expected. However, actual production growth often falls short of the target, as most member states are producing close to their maximum capacity.

Compliance issues further complicate the situation. Countries like Kazakhstan, Iraq, and the UAE have already exceeded their production quotas, prompting Saudi Arabia to call for stricter adherence to the rules. OPEC has emphasized in a statement the need for full compliance with the Declaration of Cooperation and compensation for overproduction since January 2024, aiming to restore discipline within the alliance. Maintaining stable oil prices requires a delicate balancing act between adhering to production agreements and individual member states' needs and capabilities. Understanding the complexities of these negotiations provides valuable insight into potential future market trends.