The conformity of oil producing countries with the OPEC+ oil cuts is vital to keeping energy prices afloat and the market stabilized. In order to ensure full compliance with the oil cuts, OPEC+ countries at a meeting in April decided to introduce a system of compensating overproduction in the following months.
Despite the new system, such historic laggards as Nigeria and Iraq still were failing to comply with the quotas, but their discipline improved in August when they slashed extra barrels to offset shortcomings in the previous months. Nigeria complied with the deal by 137 percent, while Iraq showed a 118 percent conformity level, according to estimates by the International Energy Agency (IEA).
However, the UAE, a close ally of OPEC’s leader Saudi Arabia, noticeably failed to comply with the cuts in August, only slashing 80 percent of the output, a 9 percentage point decrease from July, the OPEC figures indicated. According to the IEA estimations, Abu Dhabi’s compliance was much lower and stood at a mere 10 percent last month.
Some expect that OPEC+ participants will pressure the UAE to improve compliance with the deal, but it will likely be very subtle due to a close relationship between Abu Dhabi and Riyadh.
Even though the OPEC+ states will unlikely increase production cuts this month, which currently stand at 7.7 million barrels per day (mbd), the situation in the energy market this month has been cheerless due to the worsening demand forecasts and modest energy prices.
OPEC this week downgraded its 2020 forecast for global oil demand by 0.4 mbd, and now expects a contraction of 9.5 mbd. IEA has also revised down its forecast for 2020, now expecting a global oil demand contraction of 8.4 mbd instead of 8.1 mbd decrease forecast last month. Both organizations cited COVID-19 second wave concerns and slow economic recovery in some regions as a reasoning behind lackluster forecast.