OPEC+ production cuts have been extended to shore up the oil price. (Image source: Adobe Stock)
OPEC+ countries have extended their production cuts announced in April 2023 until the end of December 2025, in a bid to ensure the stability of the oil markets
Eight OPEC+ countries – Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman – will also extend their additional voluntary cuts of 2.2mn bpd announced in November 2023, to the end of September 2024, following which the cuts will be phased out on a monthly basis until the end of September 2025. This monthly increase can be paused or reversed according to market conditions, according to an OPEC statement.
OPEC+ also decided that quotas for 2025 will remain unchanged except for the UAE, which will get an additional 300,000 bpd allocation to 3.519mn bpd, on condition that it will only gradually raise its output over the first nine months of the year.
Bearish for oil markets
“While it was always the strategy of the eight OPEC+ members to gradually return the 2.2m bpd of extra voluntary cuts to markets (given elevated spare capacity), we view the detailed timeline for unwinding them over the subsequent 12 months (Q4 2024 to Q3 2025), as incrementally bearish for oil prices,” commented Ehsan Khoman and Soojin Kim from MUFG, in a statement.
“Looking ahead, notwithstanding what we read as an incrementally bearish outcome, we continue to hold conviction that effective OPEC+ market management will ensure Brent crude remains in a USD80-100/b range through to 2025.”
Much will depend on how much of growth in demand for oil is satisfied by increasing supply from non-OPEC+ oil producers such as the United States, Canada, Brazil, Guyana and newcomers such as Niger, comments S&P.
“Two years ago, at this time OPEC+ output was 2.2mn bpd higher than it is now. Total non-OPEC+ crude oil output is 3.1mn higher now, with more than half that growth coming from the United States alone. Put another way, OPEC+ has had to make room for the rising output of others or face downward pressure on prices,” said Bhushan Bahree, executive director, S&P Global Commodity Insights.
“An increase in quota does not automatically translate into more supply. The United Arab Emirates, for instance, is participating in additional voluntary cuts at this time. But the adjustment does change the share of the OPEC+ pie, giving the UAE a larger slice,” added Paul Tossetti, executive director, S&P Global Commodity Insights.
See also https://oilreviewmiddleeast.com/industry/opec-extends-production-cuts-to-shore-up-oil-market
