Kazakhstan pushes Opec+ output above target

Surging output from Kazakhstan saw the Opec+ alliance overshoot its collective crude production target in February for the first time in eight months.

Opec+ members subject to targets increased output by 430,000 b/d to just under 34mn b/d in February, 110,000 b/d above target, Argus estimates (see table). This represents the alliance's largest monthly increase since September 2023. The group has signalled that more output is on the way, after eight members agreed to start unwinding 2.2mn b/d of extra cuts from April.

Kazakhstan's production rose by 220,000 b/d to a record 1.75mn b/d in February, driven by the start-up of a new production unit at the Chevron-led Tengiz oil project. This helped boost Tengiz production to 878,000 b/d in February and put the country a whopping 280,000 b/d above its Opec+ target. "We fully understand we are overproducing," deputy energy minister Alibek Zhamauov says. "The main reason is that we expected [new] Tengiz production in the middle of the year, however international shareholders decided to start up in January."

Kazakhstan is among the largest Opec+ overproducers and has repeatedly said it will compensate for exceeding its target since January 2024. This has frustrated other Opec+ members that have largely stuck to their targets. Zhamauov says Kazakhstan remains committed to the Opec+ alliance — "we fully understand the importance of the Opec+ mission to stabilise the oil market and price for oil". Astana says it has asked international operators at the Tengiz and Kashagan fields to make sharp production cuts so that it can meet its target. The ministry held talks with ExxonMobil, TotalEnergies, Italy's Eni and Shell this week, and energy minister Almasadam Satkaliyev will travel to the US next week to hold further discussions with company chief executives on reducing output, Zhamauov says. Kazakhstan will strive to lower crude output by 297,000 b/d to 1.45mn b/d in March, with most of the reduction coming in the second half of the month, he says.

The largest Opec+ overproducer, Iraq, is also supposed to be compensating for previously overshooting its quota. But its output rose by 30,000 b/d to 4.05mn b/d in February — 50,000 b/d above target. Russia was another key overproducer last year, but its compliance has improved in recent months. Output was 20,000 b/d below its target of 8.98mn b/d in February.

Other sizeable increases came from Nigeria, which increased output by 70,000 b/d, and the UAE, which rose by 60,000 b/d, with both above target. The group's output in February would have been much higher were it not for the fact that several members, including Azerbaijan, Malaysia, Sudan and South Sudan, have failed to produce anywhere close to their targets in recent months.

Forward formula

Opec's core Mideast Gulf members are beginning to cut official pricing formulas for April sales. Formula prices can indicate intentions on output, as producers fine-tune how affordable their crude is for marginal refiners. Saudi Aramco has already cut prices for sales to Asia-Pacific by 30-60¢/bl and for Europe by 20-30¢/bl. It kept US term prices unchanged, perhaps aware that tariffs on Canadian and Mexican imports would force US refiners to pay up for alternative sour crudes. Iraq, Kuwait and the UAE typically follow the Saudi lead on price direction.

Formula cuts follow lower prices on competing spot sour crude markets, as well as expectations of a drop in demand as refineries shut for maintenance. They also reflect unexpectedly robust Russian exports in the wake of tighter US sanctions on shipping. The vacillation of US president Donald Trump over Canadian and Mexican tariffs will no doubt complicate the calculus as US refiners have another month's grace at least on crude imports before the new levies take effect.