OPEC+ extends major oil production cuts until 2025 to control the market
OPEC+ has announced an extension of its substantial oil production cuts into 2025, aiming to control the market amid sluggish demand growth, elevated interest rates, and increasing U.S. oil production. The group will maintain its current reduction of 5.86 million barrels per day (bpd), with specific cuts being extended and gradually phased out. The decision to prolong significant production cuts underscores OPEC+’s commitment to market control
Faced with slow demand growth, high interest rates, and the rise in U.S. oil production, the group aims to support oil prices by managing supply tightly
OPEC+ is currently implementing cuts amounting to 5.86 million bpd, representing approximately 5.7 per cent of global demand.
This figure includes 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, which were initially scheduled to end in June 2024.
The mandatory cuts of 3.66 million bpd will now be extended 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.
Following this period, these voluntary reductions will be gradually phased out over the year, from October 2024 to September 2025.
Saudi Energy Minister Prince Abdulaziz bin Salman emphasised that the group’s strategy is to wait for more favourable economic conditions before altering their production approach.
Specifically, OPEC+ is looking fo lower interest rates and more consistent global economic growth, rather than isolated growth spurts, to ensure a stable market environment.
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 is expected to decrease as the 2.2 million bpd voluntary cuts start phasing out in October 2024.
Contrasting OPEC”s forecasts, the International Energy Agency (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 the differing perspectives on future market dynamics between oil producers and consumers.
The extension of production cuts by OPEC+ reflects a strategic move to manage supply and support oil prices amid uncertain economic conditions.
