OPEC+ has decided to extend its significant oil output cuts well into 2025. The decision comes as the group aims to stabilize the market amidst slow demand growth, high interest rates, and increasing U.S. oil production.
Recently, Brent crude oil prices have hovered around $80 per barrel, which is insufficient for many OPEC+ members to balance their budgets. Concerns over weak demand growth in China, the world’s top oil importer, and rising oil stocks in developed countries have further pressured prices.
Since late 2022, OPEC+—a coalition of the Organization of the Petroleum Exporting Countries and allies led by Russia—has implemented substantial output cuts. Currently, the group is cutting production by 5.86 million barrels per day (bpd), accounting for about 5.7% of global demand.
This includes 3.66 million bpd of cuts, initially set to expire at the end of 2024, and voluntary cuts by eight members totaling 2.2 million bpd, which were due to end in June 2024.
On Sunday, OPEC+ agreed to extend the 3.66 million bpd cuts by a year until the end of 2025 and prolong the 2.2 million bpd cuts by three months until the end of September 2024. The group will phase out the 2.2 million bpd cuts gradually from October 2024 to September 2025.
Saudi Energy Minister Prince Abdulaziz bin Salman expressed optimism about future economic growth and interest rates. “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,” he stated.
OPEC projects that demand for OPEC+ crude will average 43.65 million bpd in the second half of 2024, implying a stock drawdown of 2.63 million bpd if production stays at April’s rate of 41.02 million bpd. The drawdown will decrease as OPEC+ phases out the voluntary cuts starting in October.
The International Energy Agency estimates demand for OPEC+ oil plus stocks will average 41.9 million bpd in 2024. Amrita Sen, co-founder of Energy Aspects, commented, “The deal should allay market fears of OPEC+ adding back barrels at a time when demand concerns are still rife.”
Prince Abdulaziz also mentioned that OPEC+ could halt or reverse the cuts if demand does not strengthen. Analysts had anticipated an extension of the voluntary cuts due to declining oil prices and sluggish demand. However, they also predicted challenges in setting targets for 2025, given unresolved capacity targets for each member.
OPEC+ will reconvene on December 1, 2024.
