OPEC+ extends deep oil output cuts into 2025 amid market uncertainties

OPEC+ confirmed on Sunday that it will prolong its significant oil supply cutbacks well into 2025. The decision comes as a coalition of oil-producing nations seeks to stabilise the market in the face of slow demand growth, rising interest rates, and increased competition from US producers. Brent crude oil prices are currently around $80 per barrel, which is insufficient to balance many OPEC+ nations' budgets.

The Organisation of Petroleum Exporting Countries and its allies, led by Russia, known collectively as OPEC+, are sustaining severe output cutbacks implemented in late 2022. The group, which accounts for a significant portion of world oil supply, is now reducing output by 5.86 million barrels per day (bpd), which equates to approximately 5.7 per cent of total demand. These cutbacks include 3.66 million bpd, which is expected to expire at the end of 2024, as well as an extra 2.2 million bpd of voluntary reduction by eight members, which will expire in June 2024.

OPEC+ has resolved to extend the 3.66 million bpd cuts until the end of 2025, as well as the voluntary reduction of 2.2 million bpd until September 2024. The latter will be phased out progressively between October 2024 and September 2025.

Saudi Energy Minister Prince Abdulaziz bin Salman emphasised the importance of patience, saying, "We are waiting for interest rates to fall and a better path for economic growth...not pockets of growth here and there." OPEC expects demand for its crude to average 43.65 million bpd in the second half of 2024, implying a stock depletion if production maintains at the April rate of 41.02 million bpd. However, this drawdown will decrease as voluntary reductions are phased out beginning in October.

The International Energy Agency (IEA), which represents major consumers, predicts that demand for OPEC+ oil will fall to 41.9 million barrels per day in 2024. According to Amrita Sen, co-founder of Energy Aspects, "The deal should allay market fears of OPEC+ adding back barrels at a time when demand concerns are still rife."

In an unexpected turn of events, OPEC+ postponed negotiations on each member's specific capacity targets until November 2025. The UAE, which has lobbied for a greater production quota, has achieved a new objective that allows it to increase output by 0.3 million bpd from its existing 2.9 million bpd.

The deal's complexity necessitated substantial preparation, with Prince Abdulaziz conducting conversations behind the scenes. Even though most discussions are held online, certain key ministers convened in Riyadh on Sunday. Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the United Arab Emirates are among the nations making voluntary reductions.

This accord, reached in less than four hours of negotiations on Sunday, demonstrates the group's unity and strategic acumen. Prince Abdulaziz's leadership was critical in securing this agreement, which attempts to calm markets and maintain stability in the face of global economic uncertainty. The next OPEC+ meeting is set for December 1, 2024.