Opec+ is confusing the market with tangled production cuts

IN TRYING to impress the oil market by adding several rounds of cumulative production cuts, the Opec+ cartel has tied itself in knots. The result is market confusion that’s undermining its unstated goal of keeping oil prices near US$100 a barrel. Its next policy meeting, scheduled for Jun 2 via video conference, looks likely to avoid addressing the issue, however, leaving the ambiguity to persist until later this year – if not longer.

Currently, Opec+ has a hodgepodge of production cuts: One main, or “official”, curb affecting most of its members; two different layers of additional cuts, called “voluntary”, involving a subgroup; another layer of so-called compensation cuts affecting a handful of nations for the failure to implement the official reductions; plus a further layer of compensation cuts affecting a second group of members for not making the voluntary decreases in output.

There’s plenty more obfuscation. Some Opec+ countries measure their curbs based on production while others use exports for the calculation – a completely different benchmark. In addition, not everyone measures just crude, as historically has been the case; instead, Russia, the second-largest member of the Opec+ (Organisation of the Petroleum Exporting Countries and its allies) group, gauges a mix of refined products including diesel and petrol.