OPEC+ production cuts can continue past Q1 2024 if needed: Saudi Energy Minister

Saudi Arabia's Energy Minister has announced that OPEC+ production cuts can be extended past the first quarter of 2024 if needed. (Image source: Adobe Stock)

Industry

The OPEC+ oil production cuts can “absolutely” continue past the first quarter if needed, Saudi Energy Minister Prince Abdulaziz bin Salman has said, pledging the curbs would be delivered in full

The voluntary output cuts announced at the OPEC+ meeting on 30 November of 2.2mn barrels a day — of which 1mn bpd is coming from Saudi Arabia, rolling over its previous voluntary cut  — will only be withdrawn after consideration of market conditions and using a “phased-in approach,” he said in an interview with Bloomberg.

Prince Abdulaziz bin Salman said, “I honestly believe that the delivery of the 2.2 million will happen. I honestly believe that 2.2 million will overcome even the usual inventory build that usually happens in the first quarter.” There are already signs that demand is improving, he said.

As S&P reports, in addition to Saudi Arabia, Russia announced it would voluntarily cut an additional 200,000 bpd of supply, bringing its total reduction to 500,000 bpd in Q1 2024. The reduction will be from an average level of exports in May and June 2023 and will consist of 300,000 bpd of crude and 200,000 bpd of refined products.

In addition, so far Iraq, the UAE, Kuwait and Algeria among OPEC members have pledged additional production cuts in 1Q 2024, of 223,000 bpd, 163,000 bpd, 135,000 bpd, and 51,000 bpd respectively.

Non-OPEC members Kazakhstan and Oman have pledged to cut production in the same period by 82,000 bpd and 42,000 bpd respectively.

“The developments from the OPEC+ meeting highlight the imaginative ways in which the group has been evolving lately in a global oil market that is being buffeted by strong and diverse forces that range from vigorous oil production growth in the Americas to the longer-term threat to oil demand and investment posed by climate change considerations and the energy transition,” commented Paul Tossetti, executive director, S&P.

Despite the OPEC cuts, the oil price has failed to find renewed momentum after market-watchers noted that only about half of the cuts are entirely new, and also questioned whether all of the promised supply reductions will actually materialise. 

Rystad energy’s senior vice president Jorge Leon commented, “It is surprising that the group, again, had to rely on voluntary cuts from individual member countries to implement reductions in production instead of unilaterally agreeing on an OPEC+ -wide production cut. This is not a good sign of cohesion and unity within the group.”

“With these renewed cuts, our updated liquids balance for the first half of 2024 shows a market deficit of around 400,000 bpd. As a result, we expect prices to hover between US$80 and US$85 per barrel in the coming months.”

There are concerns about weak economic growth in 2024, which could depress demand. Meanwhile, the US and other non-OPEC producers are increasing production.

Ann-Louise Hittle, vice president Macro Oils at Wood Mackenzie said, “Prices are currently weighed down by expectations of slow demand growth in China and the US, reflecting their respective challenges of the property sector and interest rates remaining higher for longer. Sentiment is jittery about the prospects of economic growth and strong oil demand growth next year.  

“In our forecast, Q1 2024 could be seen as a challenge for OPEC+ as seasonally global supply growth moderately outpaces demand, and inventories build in a typical seasonal pace. The additional voluntary production cuts reflect that concern about the market balance. With demand uncertainty, the task for OPEC+ to maintain a market balance will not be straightforward.”   

However, others point to the heightened tensions in the Middle East and potential for disruption of oil supply. 

“We see a growing likelihood for oil prices to rise over the next six months due to the possibility of the extension of production cuts and increasing geopolitical tensions,” commented Nigel Green, chief executive of deVere Group.

“The intricate relationship between oil and global financial markets underscores the need for investors to stay vigilant and possibly adapt their strategies and portfolios accordingly.”