Sun, June 16, 2024

OPEC+ Extends Cuts to 2025: 3.9M Barrels/Day Reduced

The role of OPEC in the modern world

Quick Look:

  • OPEC+ extends crude production cuts to 2025, with significant reductions to stabilize market prices.
  • Unity was emphasized at the June 2 meeting in Riyadh; next meeting scheduled for December 1.
  • Varied demand forecasts, with OPEC predicting a 2.25 million barrels/day increase and IEA predicting 1.06 million barrels/day.

The Organisation of the Petroleum Exporting Countries and its allies (OPEC+) have agreed to extend their crude production cuts until 2025. This strategy includes substantial voluntary reductions from member countries. Besides, it aims to shape the global oil market for the next few years.

OPEC+ Cuts 3.9M Barrels/Day, 2025 Target at 39.725M

OPEC+ has outlined a series of voluntary cuts, with a notable reduction of 1.7 million barrels per day and an additional cut of 2.2 million barrels per day. These cuts aim to stabilise the market and maintain price levels. The official policy for the next year sets the combined production target at 39.725 million barrels per day. Adjustments among member countries include an increase of 300,000 barrels per day from the UAE between January and September 2025 and the exit of Angola from the coalition in January.

The critical meeting held on June 2 in Riyadh, Saudi Arabia, brought together ministers from countries implementing these voluntary cuts and broader OPEC, OPEC+, and coalition technical committees. Saudi Energy Minister Abdulaziz bin Salman emphasised the unity within the group, dispelling any rumours of internal conflicts. The primary goal of the meeting was to ensure a thorough understanding and consensus among all members.

Riyadh Meeting Confirms Unity, Sets 2025 Policies

OPEC+ has scheduled its next meeting for December 1, where further strategies and adjustments are expected to be discussed. This continuous dialogue underscores the group’s commitment to monitoring and adapting to the dynamic global oil market.

The oil market faces varied demand forecasts. OPEC predicts an increase of 2.25 million barrels per day this year. Meanwhile, the International Energy Agency (IEA) recently adjusted its forecast to a 1.06 million barrels per day increase last month. The Saudi Energy Minister, highlighting a cautious and pragmatic approach, remarked that these forecasts are straightforward yet must be met with a degree of scepticism, advocating for prudence and precaution in market assessments.

OPEC+ Next Meeting on Dec 1: Future Strategies

Oil prices have seen significant fluctuations in recent months. Brent crude peaked at $91 per barrel in April, dropping to $82 per barrel by June. Similarly, West Texas Intermediate (WTI) crude fell from $87 per barrel in April to $78 per barrel in June. Saudi Arabia requires Brent crude prices to be at least $81 per barrel to meet its budgetary needs.

Saudi Aramco’s share sale of less than 1%, projected to generate $13 billion, is aimed at funding the kingdom’s economic diversification projects. This move signifies Saudi Arabia’s ongoing efforts to reduce its dependence on oil revenues.

US Output at Record; China Demand Sluggish, 580K BPD Rise

The global oil market is experiencing record output levels from the US, while demand from China remains sluggish. The IEA has revised its global oil demand growth forecast down by 140,000 barrels per day to 1.1 million barrels per day. Despite this, the IEA expects a global supply increase of 580,000 barrels per day this year. However, if OPEC+ continues its production cuts, there could be a supply deficit 2024.

April Airstrike on Iran Embassy Spiked Oil Prices

Geopolitical tensions in the Middle East continue to impact oil prices. A notable incident in April, where a suspected Israeli airstrike targeted Iran’s embassy in Syria, resulted in a temporary surge in oil prices. Such events underline the fragility and interconnectedness of the global oil market.

OPEC+’s extension of production cuts and the broader strategies discussed in Riyadh reflect a calculated approach to managing the oil market amidst fluctuating demand forecasts, price volatility, and geopolitical uncertainties. As the group prepares for its next meeting in December, the global energy landscape remains poised for further adjustments and potential shifts in policy.

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