OPEC+ prolongs significant oil output reductions until 2025

OPEC+ Commits to Major Oil Output Cuts Until 2025!

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In a decision made on Sunday, OPEC+ has opted to continue the majority of its substantial oil production reductions until 2025.

This move aims to stabilize the market in light of sluggish demand growth, elevated interest rates, and increasing competition from the United States.

Recently, Brent crude oil prices have hovered close to $80 per barrel, a figure falling short of what many OPEC+ members require to balance their budgets. Concerns regarding sluggish demand growth in China, a leading oil importer, have contributed to this trend, alongside the increase in oil stocks in developed economies.

Since late 2022, the coalition known as OPEC+—comprising the Organization of the Petroleum Exporting Countries and led by Russia—has implemented a sequence of significant output reductions.

Currently, OPEC+ members are collectively reducing output by approximately 5.86 million barrels per day (bpd), equivalent to roughly 5.7% of global demand.

This includes 3.66 million bpd of cuts scheduled to terminate by the end of 2024, as well as voluntary reductions by eight members totaling 2.2 million bpd, set to conclude by the end of June 2024.

On Sunday, OPEC+ reached a consensus to prolong the cuts of 3.66 million bpd for an additional year, extending until the conclusion of 2025. Additionally, they decided to extend the reductions of 2.2 million bpd by three months, until the end of September 2024.

Furthermore, OPEC+ has outlined a plan to gradually scale back the cuts of 2.2 million bpd over a period of one year, starting from October 2024 and continuing until September 2025.

“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,” Saudi Energy Minister Prince Abdulaziz bin Salman told reporters.
OPEC anticipates that the demand for OPEC+ crude will average 43.65 million bpd in the latter half of 2024. This projection suggests a reduction in stocks of 2.63 million bpd if the group sustains output at April’s rate of 41.02 million bpd.
The drawdown is expected to decrease once OPEC+ begins gradually phasing out the voluntary cuts of 2.2 million bpd in October.
The International Energy Agency (IEA), representing major global consumers, forecasts that the demand for OPEC+ oil, including stocks, will average significantly lower levels, reaching 41.9 million bpd in 2024.
Amrita Sen, co-founder of the Energy Aspects think tank, commented, “The deal should ease market apprehensions about OPEC+ reintroducing barrels, especially at a time when demand uncertainties persist.”
Prince Abdulaziz stated that OPEC+ might halt the process of reducing cuts or even revert them if the demand proved to be insufficient.
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Analysts had anticipated that OPEC+ would extend voluntary cuts for a few more months, attributing this decision to declining oil prices and sluggish demand.
However, many analysts had also forecasted that the group would encounter difficulties in setting targets for 2025, as it had not yet reached an agreement on individual capacity targets for each member. This issue had previously caused tensions within the group.
For example, the United Arab Emirates has been advocating for a higher production quota, asserting that its capacity figure has been consistently underestimated.
However, in an unexpected turn of events on Sunday, OPEC+ decided to defer discussions on capacities until November 2025, postponing them from this year.
Instead, the group reached an agreement on a new output target for the UAE, allowing it to incrementally increase production by 0.3 million bpd, up from the current level of 2.9 million.
OPEC+ reached an agreement to utilize independently assessed capacity figures as guidance for 2026 production instead of 2025, thereby postponing a potentially challenging discussion by one year.
Prince Abdulaziz mentioned that one of the reasons for the delay was the challenges faced by independent consultants in assessing Russian data, particularly due to Western sanctions on Moscow following its conflict with Ukraine.
The meetings on Sunday concluded in less than four hours, which is relatively brief considering the complexity of the deal.
Sources within OPEC+ revealed that Prince Abdulaziz, regarded as the most influential minister within the OPEC group, had spent several days meticulously crafting the deal behind the scenes.

Some key ministers, primarily those involved in the voluntary cuts, were asked to convene in Riyadh on Sunday, despite most meetings being conducted online.

The countries participating in voluntary output reductions include Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the United Arab Emirates.

“It’s a significant demonstration of solidarity for the group and Prince Abdulaziz,” remarked Sen, highlighting that the agreement would alleviate concerns about Saudi Arabia increasing production due to Aramco’s share listing.

The Saudi Arabian government has initiated steps to sell a new stake in state oil giant Aramco, potentially raising up to $13.1 billion. This move represents a landmark deal to support Crown Prince Mohammed bin Salman’s economic diversification plan.

The next meeting of OPEC+ is scheduled for December 1, 2024.

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