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OPEC+ members have agreed to extend deep oil output cuts, in some cases until the end of 2025, as they battle to prop up prices amid weak global demand and increased supply from other parts of the world.
At its last biannual meeting on Sunday, the cartel admitted it had no room yet to change its stance on production cuts that began in November 2022 and pledged to keep more than 3 million barrels of oil off the market by the end of next year daily.
The group will bring back only a small portion of its capped output this year after eight members, including Saudi Arabia, Russia, Iraq and the United Arab Emirates, agreed to begin some “voluntary” cuts from October.
Even that move could be halted and reversed at any time if market conditions worsen, Prince Abdulaziz bin Salman, the Saudi oil minister, warned at a briefing after the announcement. He added that while Opec+, the wider group that includes Russia and Kazakhstan, wants to raise output, it will depend on a better trajectory of the global economy and moves by central banks to start cutting interest rates.
With an uncertain outlook for oil demand from China and surging oil production from countries outside the Opec+ alliance, notably the US and Canada, member countries went further than expected to reassure the market that they would continue to show output discipline.
OPEC+ members “know that demand concerns continue,” said Amrita Sen, founder of research agency Energy Aspects. “They want to continue to provide stability.”
While the Opec+ meeting took place virtually, eight key members, including Russia, Iraq and the United Arab Emirates, gathered in Riyadh for face-to-face talks ahead of the event.
Sen also said it was surprising that Opec+ postponed potentially complicated negotiations on future production quotas until the end of next year. “They know it’s not the right time to have that conversation,” she added.
Prince Abdulaziz indicated that the process of accurately assessing the capacity of OPEC+ members had been delayed because Russia was unable to share detailed data with the independent consulting companies tasked with carrying out the work.
On Friday, benchmark Brent crude traded at $80 a barrel, down from more than $90 in April, as tensions rose in the Middle East.
The complicated actions announced on Sunday highlight the challenge the producer group faces as it tries to support prices while maintaining harmony among members, some of whom are trying to resume limited production.
Opec+ members are implementing three sets of supply restrictions in place from November 2022.
The first set, a group-wide cut of 2 million b/d that expires at the end of the year, was extended by 12 months by extending members’ base production quotas for another year. However, the group exempted the United Arab Emirates, which will be allowed to gradually increase its baseline production by 300,000 b/d in 2025.
A set of voluntary production curbs by nine members, including Saudi Arabia, Russia and the United Arab Emirates, was also extended until the end of 2025, totaling 1.66 million b/d and set to expire in December.
A third set of voluntary cuts introduced in January and through the end of this month, representing 2.2 million b/d, will be extended until September and then gradually eased over the next 12 months, Saudi Arabia’s energy ministry said in a separate statement. The ministry added that it could reverse the plan if market dynamics change.
The three sets mean Opec+ members are currently producing nearly 6 million b/d less than their combined capacity, or about 6 percent of global supply.