OPEC+ has extended significant oil production cuts into 2025 to stabilize the market amid slow demand growth, high interest rates, and rising U.S. oil production. The group will continue with 5.86 million bpd cuts, with specific reductions extended and phased out gradually.
Highlights
Extension of Production Cuts: OPEC+ has decided to extend significant oil production cuts into 2025. This decision aims to stabilize the market, which is currently facing challenges such as slow demand growth, high interest rates, and increasing U.S. oil production.
Current Output Cuts: The current cuts amount to 5.86 million barrels per day (bpd), representing about 5.7% of global demand. These cuts include both mandatory reductions of 3.66 million bpd, originally set to expire at the end of 2024, and voluntary cuts by eight members totaling 2.2 million bpd, set to end in June 2024.
Extension Details: The mandatory cuts of 3.66 million bpd will now continue until the end of 2025. Meanwhile, the voluntary cuts of 2.2 million bpd will be extended by three months, up to the end of September 2024, before being gradually phased out over the year from October 2024 to September 2025.
Economic Considerations: Saudi Energy Minister Prince Abdulaziz bin Salman emphasized the group's strategy to wait for lower interest rates and more consistent global economic growth, rather than sporadic growth in isolated areas, before altering their production strategy.
Future Demand and Stock Drawdown: OPEC anticipates that demand for OPEC+ crude will average 43.65 million bpd in the latter half of 2024. This scenario suggests a stock drawdown of 2.63 million bpd if the group's output remains at April's rate of 41.02 million bpd. However, this drawdown will reduce as the 2.2 million bpd voluntary cuts start phasing out from October 2024.
International Energy Agency's (IEA) Projections: Contrasting OPEC’s forecasts, the IEA estimates that the demand for OPEC+ oil, combined with stock levels, will average much lower at 41.9 million bpd in 2024. This discrepancy highlights different outlooks on future market dynamics between producers and consumers.
Strategic Market Positioning: The extension of production cuts by OPEC+ reflects a strategic move to manage supply tightly and support oil prices amid uncertain economic conditions. This decision underscores the group's influence and the complexities of balancing global oil supply and demand.
Conclusion
OPEC+'s decision to extend and gradually phase out oil production cuts demonstrates a strategic effort to manage global supply and support prices amid economic uncertainty. By waiting for more stable economic conditions and lower interest rates, the group aims to balance market stability with sustainable growth. This move underscores the critical role of OPEC+ in influencing global oil dynamics and addressing the challenges posed by fluctuating demand and competitive pressures.