In an effort to support prices, the Organization of the Petroleum Exporting Countries and its allies, led by Russia, decided on Sunday to extend the majority of its steep oil supply cutbacks well into 2025.
The decision was made in response to a meeting that took place in Riyadh, Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman during the 37th OPEC and non-OPEC Ministerial Meeting (ONOMM).
According to an alliance statement, the 12-member cartel and its ten allies have agreed to “extend the level of overall crude oil production… starting 1 January 2025 until 31 December 2025.”
The price of a barrel of Brent crude oil has been hovering around $80 recently, which is less than what many OPEC+ countries require to balance their budgets. Along with growing oil reserves in rich economies, concerns about the slow development of demand in China, the world’s largest oil importer, have kept prices high.
Members of OPEC+ are now reducing their output by 5.86 million barrels per day (bpd), or roughly 5.7% of the world market.
These comprised 2.2 million bpd of voluntary cuts by eight members that would expire at the end of June 2024 and 3.66 million bpd of cuts that were scheduled to expire at the end of 2024.
OPEC+ decided on Sunday to extend the 2.2 million bpd of cuts by three months until the end of September 2024, and to extend the 3.66 million bpd of cuts by a year till the end of 2025.
The 2.2 million bpd of cuts will be phased out by OPEC+ over the course of a year, from October 2024 to September 2025.
Prince Abdulaziz bin Salman, the Saudi Energy Minister, told reporters, “We are waiting for interest rates to come down and a better trajectory when it comes to economic growth… not pockets of growth here and there.”
If OPEC+ keeps producing at the pace it did in April—41.02 million barrels per day—it anticipates that demand for its petroleum would average 43.65 million barrels per day in the second half of 2024, resulting in a 2.63 million barrel stock drain.
When OPEC+ begins to phase out the voluntary cutbacks of 2.2 million barrels per day in October, the decline will be smaller.
According to the International Energy Agency, which speaks for the world’s largest consumers, the average demand for OPEC+ oil plus inventories in 2024 is expected to be significantly lower at 41.9 million barrels per day.
According to Amrita Sen, co-founder of the think tank Energy Aspects, “the deal should allay market fears of OPEC+ adding back barrels at a time when demand concerns are still rife.”
If demand wasn’t high enough, Prince Abdulaziz suggested OPEC+ might stop the cutbacks from being unwound or even reverse them.
Because of declining oil prices and weak demand, analysts had predicted that OPEC+ would extend its voluntary cuts by several months.
The group had not yet reached a consensus on individual capacity targets for each member, which had previously caused conflict, which was one of the reasons why many analysts had also projected that the organization would find it difficult to set targets for 2025.
For example, the United Arab Emirates has been advocating for an increased production quota, claiming that its capacity had been long underestimated.
However, in an unexpected move on Sunday, OPEC+ decided to push back this year’s capacity talks until November 2025.
Rather, the group decided on a revised output target for the United Arab Emirates, which will permit a gradual increase in production from the current level of 2.9 million barrels per day to 0.3 million.
By delaying a potentially contentious discussion by a year, OPEC+ decided to adopt independently assessed capacity statistics as guideline for 2026 output rather than 2025.
According to Prince Abdulaziz, one of the causes of the hold-up was the inability of independent consultants to evaluate Russian data in the context of Western sanctions imposed on Moscow for its conflict with Ukraine.
Less than four hours passed during the Sunday sessions, which is not too long for such a complicated agreement.
The most powerful minister in the OPEC group, Prince Abdulaziz, reportedly spent days behind closed doors preparing the agreement, according to OPEC+ insiders.
Even though talks were predominantly arranged online, he invited a few important ministers, primarily those who supported the voluntary reduction, to visit the Saudi capital of Riyadh on Sunday.
The following nations have voluntarily reduced their output: Saudi Arabia, Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, and the United Arab Emirates.
Sen stated that the agreement will allay concerns that Saudi Arabia might resume supplying barrels as a result of Aramco’s share listing. “It should be seen as a huge victory of solidarity for the group and Prince Abdulaziz,” Sen said.
The Kingdom of Saudi Arabia has initiated legal proceedings to sell a fresh interest in the national oil major Aramco, with the potential to generate up to $13.1 billion. This significant agreement will support Crown Prince Mohammed bin Salman’s economic diversification strategy.
The next meeting of OPEC+ is scheduled for December 1, 2024.
AFP/Reuters
