OPEC+ compliance slipped two percentage points in May to 87%, driven primarily by persistent overproduction in Iraq and Kazakhstan. Saudi Arabia compensated with additional voluntary cuts, but the overall group discipline is fraying. The cumulative overproduction by Iraq and Kazakhstan now totals approximately 600,000 barrels above quota since March.
Iraq produced 4.25 million bpd in May, 120,000 bpd above its quota of 4.13 million bpd. This marks the third consecutive month of non-compliance. Baghdad has cited its need for oil revenue to fund post-war reconstruction and budget commitments, but fellow OPEC members view the overproduction as a breach of solidarity.
Kazakhstan overproduced by 80,000 bpd as its Tengiz expansion project continued to ramp up. The country's production capacity is structurally exceeding its quota, and it has requested a baseline adjustment at the July meeting. The OPEC+ secretariat has indicated that compensatory cuts will be required from both countries.
The July 2 ministerial meeting is critical. If the group agrees to stricter compliance measures, the market could tighten by 200,000-300,000 bpd. If it allows baseline adjustments, the effective cut depth diminishes. Neither outcome is fully priced in at current WTI levels of $90.
The July 2 OPEC+ meeting is a binary event. If stricter compliance is enforced, expect a $2-3/bbl rally. If baselines are adjusted upward, oil could test $88. Cover 15% of H2 volumes before the meeting at $90; wait for the outcome for the remaining position.