OPEC+ Extends Oil Output Cuts into 2025
The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, made a crucial decision on Sunday that will significantly impact the global oil market. In a strategic move, the group has agreed to prolong most of its comprehensive oil output reductions into 2024, with a plan in place to begin the phase-out process in 2025. This decision comes amidst concerns over sluggish growth in global demand, heightened interest rates, and an upsurge in oil production from the United States.
With current oil prices hovering around $80 per barrel, the persistence of these prices falls short of meeting the budgetary requirements of many OPEC+ members. Factors such as softening demand growth in China, the world’s leading oil importer, and surging oil inventories in developed nations have contributed to pressures on oil prices.
As part of its strategy to stabilize the market, OPEC+ has been implementing a series of substantial output reductions since the latter part of 2022. Presently, the alliance is reducing its oil production by a total of approximately 5.86 million barrels per day, which accounts for nearly 5.7 percent of worldwide demand.
The elaborate set of cuts comprises a two million barrels per day reduction by all OPEC+ members, complemented by the first round of voluntary cuts amounting to 1.66 million bpd by nine members, and a second round of voluntary reductions totaling 2.2 million bpd by eight members. In a noteworthy development, OPEC+ announced the extension of the first round of cuts until the conclusion of 2025, a revision from the original end date in 2024.
Additionally, the group consented to carry over the third round of voluntary cuts into the third quarter of 2024. Further particulars are being finalized and are expected to be disclosed on Sunday. The nations participating in the second round of voluntary cuts include Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, the UAE, and Gabon. However, all except Gabon are partaking in the third round.
In a decision aimed at reconfiguring production quotas, OPEC+ agreed to grant the United Arab Emirates a heightened quota of 3.5 million barrels per day in 2025, an increase from its current level of 2.9 million bpd. This adjustment reflects the evolving dynamics within the group and the broader oil market.
Furthermore, OPEC+ has decided to defer the deadline for an independent evaluation of its members’ production capacities to the end of November 2025, pushing it from the previously set date of June 2024. The forthcoming evaluation figures will serve as a benchmark for delineating reference production levels for the year 2026.
The consortium is scheduled to convene again on December 1, 2024, where further decisions regarding oil production policies and strategies are anticipated. This series of measures by OPEC+ underscores the group’s commitment to maintaining market stability and proactively addressing the various challenges confronting the global oil sector.
