Key Points:
- OPEC+ extends 3.66 million bpd cuts until the end of 2025 and 2.2 million bpd cuts until September 2024.
- It aims to stabilize the market amid low demand growth, high interest rates, and rising U.S. production.
- OPEC expects higher demand than the International Energy Agency, indicating a potential stock drawdown.
- UAE will increase output by 0.3 million bpd starting in October 2024. Capacity target discussions deferred to November 2025.
OPEC+ announced on Sunday its decision to extend significant oil output cuts until 2025, surpassing expectations as the group aims to stabilize the market amid sluggish demand growth, high interest rates, and increasing U.S. production. Oil prices hover around $80 per barrel, below the level many OPEC+ members require to balance their budgets. Concerns over slow demand growth in China, the world’s top oil importer, and rising oil inventories in developed economies have also exerted downward pressure on prices.
The Organization of the Petroleum Exporting Countries and allies led by Russia, collectively known as OPEC+, have been implementing deep output cuts since late 2022. OPEC+ reduces output by 5.86 million barrels per day (bpd), accounting for approximately 5.7% of global demand. This includes 3.66 million bpd of cuts set to expire at the end of 2024 and voluntary reductions by eight members totaling 2.2 million bpd, which were scheduled to end in June 2024.
In their latest decision, OPEC+ agreed to extend the 3.66 million bpd cuts by an additional year until the end of 2025 and to prolong the 2.2 million bpd cuts by three months, pushing their expiration to the end of September 2024. From October 2024, OPEC+ plans to gradually phase out the 2.2 million bpd cuts over a year until September 2025.
Saudi Energy Minister Prince Abdulaziz bin Salman highlighted the group’s cautious approach, stating, “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.” Amrita Sen, co-founder of the Energy Aspects think tank, commented, “The deal should allay market fears of OPEC+ adding back barrels at a time when demand concerns are still rife.”
OPEC anticipates demand for OPEC+ crude will average 43.65 million bpd in the second half of 2024, suggesting a stock drawdown of 2.63 million bpd if the group maintains output at April’s rate of 41.02 million bpd. However, the International Energy Agency estimates a lower demand of 41.9 million bpd for OPEC+ oil and stocks in 2024.
Surprisingly, OPEC+ deferred discussions on individual capacity targets until November 2025 instead of this year. The UAE, which has been advocating for a higher production quota, will be allowed to gradually increase its output by 0.3 million bpd from the current level of 2.9 million bpd.
The agreement, reached after less than four hours of meetings, is seen as a significant achievement for Prince Abdulaziz, who had pre-negotiated the deal. The next OPEC+ meeting is scheduled for December 1, 2024.
