OPEC+ agrees to extend deep oil production cuts to buttress prices
LONDON/DUBAI: OPEC+ agreed on Sunday to extend most of its deep oil output cuts for 2024 but to start phasing them out in 2025, as the group seeks to shore up the market amid tepid global demand growth, high interest rates and rising rival US production.
Saudi Arabia's Minister of Energy Prince Abdulaziz bin Salman Al-Saud speaks at the Future Investment Initiative conference, in Riyadh, Saudi Arabia this file photo. -- Reuters.
The Saudi energy ministry said after the meeting that eight members of the OPEC+ group of oil-producing nations agreed Sunday to extend their voluntary supply cuts by a few months before gradually phasing them out. The eight OPEC+ nations are Saudi Arabia, Russia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman. Their voluntary supply cuts of 2.2 million barrels per day (bpd) will be extended until September 2024 and then “phased out” by September 2025, the statement said. In addition, voluntary cuts of 1.65 million bpd announced in April 2023 have been extended until the end of 2025, the statement added.
Oil prices trade near $80 per barrel, below what many OPEC+ members need to balance their budget. Worries over slow demand growth in top oil importer China have weighed on prices alongside rising oil stocks in developed economies. The Organization of the Petroleum Exporting Countries and allies led by Russia, together known as OPEC+, have made a series of deep output cuts since late 2022.
The logo of the Organization of the Petroleum Exporting Countries (OPEC) is seen at OPEC's headquarters in Vienna, Austria. – Reuters.
OPEC+ members are currently cutting output by a total of 5.86 million barrels per day (bpd), or about 5.7 percent of global demand. The cuts include 2 million bpd by
all OPEC+ members, the first round of voluntary cuts by nine members of 1.66 million bpd, and the second round of voluntary cuts by eight members of 2.2 million bpd. OPEC+ extended the first round of cuts until the end of 2025 from the end of 2024, the group said in a statement. It also agreed to extend the third round of voluntary cuts into the third quarter of 2024, OPEC+ sources said, adding that more details were being worked out.
The countries which have made voluntary cuts in the second round are Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia and the United Arab Emirates and Gabon. The same countries except Gabon participated in the third round. The group also agreed to allocate the United Arab Emirates a higher production quota of 3.5 million bpd in 2025, up from the current level of 2.9 million.
OPEC+ also postponed the deadline for an independent assessment of its members’ production capacities to the end of November 2025 from June 2024. The figures
will be used as guidance for 2026 reference production levels. OPEC+ will hold its next meeting on Dec 1, 2024.
According to Mukesh Sahdev at the Rystad Energy research group, the alliance faces the issue of “actual barrels flowing to the market likely being higher than what is accounted for”, which could potentially undermine the cartel’s strategy.
Moreover, Iraq and Kazakhstan exceeded their quotas in the first quarter, while Russia overproduced in April. Oil prices have changed little since the last meeting in November, hovering at around $80 a barrel.
Amid questions surrounding global demand, some analysts say that gradually allowing more oil to hit markets might be ahead in 2025.
OPEC continues to stick to its demand forecasts for 2024, while the International Energy Agency has revised its estimates downwards.
Amid “above-average inflation, slowing global growth outlook, central bank uncertainties, rising US oil production and Middle East tensions, the environment is challenging”, said Ipek Ozkardeskaya, a market analyst at Swissquote Bank. — Agencies.
