The eight OPEC+ countries that pledged last November to implement voluntary production cuts totalling 2.2mn bpd for the first quarter of 2024 have agreed to extend the cuts until the end of Q2 this year, in a bid to support a balanced oil market
These additional voluntary cuts are as follows: Saudi Arabia (1 mn bpd); Iraq (220,000 bpd); United Arab Emirates (163,000 bpd); Kuwait (135, 000 bpd); Kazakhstan (82,000 bpd); Algeria (51,000 bpd); and Oman (42,000 bpd) for the second quarter of 2024. Afterwards, in order to support market stability, these voluntary cuts will be returned gradually subject to market conditions, OPEC announced in a press statement.
The above will be in addition to the announced voluntary cut by the Russian Federation of 471,000 bpd for the same period.
“While the common view in the market was that the group would partially extend the cuts into this year’s second quarter in some form, the latest announcement goes above market expectations,” commented Jorge Leon, senior VP at energy consultants Rystad Energy.
Defending a price floor above US$80 per barrel
“This new move by OPEC+ clearly shows strong unity within the group, something that was put into question after the November ministerial meeting, which saw Angola leaving OPEC. It also shows robust determination to defend a price floor above US$80 per barrel in the second quarter.
“The updated market balance now shows that the deficit will continue into the second quarter (-0.9mn bpd), which should add upside price pressure and keep prices above US$80 per barrel.”
Rystad forecasts a strong demand rebound in the second half of this year, reducing the likelihood of a further extension of the voluntary cuts, noting that OPEC also forecasts strong demand growth during this period.
The recent increase in geopolitical risk in the market could also be playing a role in this decision, Rystad adds. With an increasingly volatile geopolitical situation in the Middle East, extending voluntary cuts instead of abandoning them provides Saudi Arabia, the UAE and Kuwait with more spare capacity that could be needed if the conflict escalates further, and the market sees actual supply disruptions.
Brent rose more than 2% ahead of the OPEC announcement, currently standing around US$83/bbl.
