OPEC (ex. Iraq) Changes Quotas to Impact Prices
Sources: EIA, Short-Term Energy Outlook database, August 2000.
Notes:
Oil prices tend to be cyclical, and by early 1998, prices had fallen so much that the OPEC 10 countries (the 11 members of OPEC minus Iraq whose oil exports are under UN sanctions) got together and decided to cut production from estimates of February 1998 levels by 1.25 million barrels per day (MMBD) effective April 1998. When prices did not recover right away, the OPEC 10 countries decided to cut quotas (not necessarily production) by an additional 1.35 MMBD effective July 1998.
Following a few months of that, prices started increasing, but not fast enough for OPEC, so the OPEC 10 countries initiated a 3rd round of production quota cuts effective April 1999. Total targeted cuts in production from February 1998 levels amounted to over 4.3 MMBD. With peak OPEC compliance rates at 80% or higher, actual production was cut by about 3.5 MMBD.
But in 2000, OPEC agreed to “turn back” the 3rd cut and increased quotas by 1.7 MMBD effective April 2000. However, OPEC cohesion had started to decline prior to this and they were “overproducing by about 1 MMBD, so production increases were closer to just a little under 1 MMBD as opposed to the target increase of 1.7 MMBD.
After initially declining to about $25 per barrel on a monthly basis (about $27 per barrel for West Texas Intermediate) in April, prices shot back up again, so OPEC decided to increase production quotas by another 0.7 MMBD. However, with decreased investment in some countries and increased production in others, much of OPEC is now producing very close to capacity. Only Saudi Arabia, Kuwait, and the United Arab Emirates have a significant amount of spare production capacity, so any further increases will disproportionately favor these countries. Thus, OPEC cohesion may become a problem for OPEC again.