Kazakhstan’s oil production in May is likely above its agreed limit, continuing a trend of exceeding OPEC+ restrictions. In the first 19 days of May, the country produced 1.86 million barrels per day, up 2% from April and in line with March figures. OPEC+ had set Kazakhstan’s production cap at 1.49 million barrels per day for May. The Tengiz oil field is the main driver of this increased production, expected to account for about half of Kazakhstan’s output this month. The Ministry of Energy reports that Tengiz has met its production targets, keeping projections stable for the rest of the year. However, OPEC+, especially Saudi Arabia, may be concerned about Kazakhstan’s high output levels.

Potential Boost In Production

Other OPEC+ countries may follow Kazakhstan’s example and increase production, especially in the summer months. This could lead to higher outputs in July, similar to those of May and June. These developments highlight ongoing dynamics within the OPEC+ group regarding production targets. Kazakhstan’s production above the agreed limit indicates a potential shift in OPEC+ norms, suggesting that other members may also ignore quotas. The consistent output from Tengiz allows Kazakhstan to produce confidently without immediate technical issues. This stability lets them balance their internal goals while stretching the limits of compliance with OPEC+. In the short term, the extra supply might hinder price recovery, especially since global inventories have not decreased as swiftly as expected in early Q2. For market players relying on OPEC+ adherence to supply discipline, the case is growing that this discipline may weaken if more countries begin to disregard quotas. With rising summer demand, several member states might shift strategies from compliance to protecting their finances, especially if Brent prices remain near profitable levels. Saudi Arabia, often viewed as the stabilizing force, may react with frustration and a reevaluation of strategy. If Riyadh adjusts its exports or targets specific markets, it could introduce volatility and catch traders off guard. It’s important to monitor their shipping activities and pricing trends in the coming weeks, rather than just their official statements.

Impact On The Futures Curve

In the futures market, backwardation could show less steepness if traders believe that supply increases will continue. If more OPEC+ members decide to produce freely, longer-dated contracts might adjust downward. We should approach calendar spreads with caution, particularly over the next three to six months, to avoid overexposure to tight supply assumptions. For options trading, implied volatility remains sensitive to producer decisions and current inventory levels. Adjusting positions dynamically is crucial, especially during days with shipping reports or unexpected production updates. Kazakhstan has indicated it will maintain production close to current levels, so unless compliance enforcement tightens or other countries change their approach, we should expect ongoing pressure on collective compliance. Tracking refinery margins, especially in Asia where much of this excess crude may flow, could provide additional insights. If margins fall despite seasonal demand, it confirms oversupply. Countries with larger refining capacities might start to benefit, affecting pricing and arbitrage considerations from Europe and the US Gulf. We should also keep an eye on the behavior of producers outside OPEC+. If compliance falters within the group, it might encourage countries like Brazil or Norway to increase production unrestrained, worsening the oversupply situation and undermining efforts to stabilize market benchmarks. Shipping logistics should be monitored closely. If long-term charters begin to fill at higher rates, it signals that excess output is being shipped, increasing pressure on floating storage and impacting front-end contract premiums. Any changes in this area could create short-term trading opportunities for those tracking TIC data and port movements. With individual states taking targeted actions instead of a unified OPEC+ approach, we need to consider more scenarios. A flexible strategy for delta and gamma exposure is advisable, especially since instability now seems more likely to arise from within the group. Stay focused on data and adjust positioning when volume flows indicate changes in the market narrative—assumptions of unity among OPEC+ members are looking less certain than before. Create your live VT Markets account and start trading now.

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