OPEC+ Welcoming Move
The decision to prolong crude oil production cuts into 2025 by the Organization of Petroleum Exporting Countries (OPEC) and its allies’ led by Russia (together known as OPEC+) is being seen as a welcoming move to support market stability.
OPEC+ has made a series of cuts since late 2022 amid rising output from the United States and other non-members, and worries over slow global demand as major economies grapple with high interest rates. Oil prices trade near $80 per barrel, below what many OPEC+ members need to balance their budget.
The physical market is well supplied, while the rising global oil inventories supports the case for OPEC+ producers to keep supply cuts in place. Oil stocks among the wealthy Organization for Economic Co-operation and Development (OECD) countries stood at 2.79 billion barrels in March, up 20 million barrels on the month and 34 million barrels on the year, despite the OPEC+ cuts, according to preliminary data from OPEC in its May oil market report.
As per the pact sealed at the 37th OPEC and non-OPEC Ministerial Meeting, the level of overall crude oil production for OPEC and non-OPEC Participating Countries in the Declaration of Cooperation (DoC) will be extended starting from January 1, 2025 until December 31, 2025.
OPEC+ members are currently cutting output by a total of 5.86 million barrels per day (bpd), or about 5.7% of global demand.
OPEC+ agreed to extend the cuts of 3.66 million bpd by a year until the end of 2025 and prolong the cuts of 2.2 million bpd by three months until the end of September 2024. OPEC will spend one year on gradually phasing out cuts of 2.2 million bpd starting from October 2024 until the end of September 2025.
The countries which have made voluntary cuts that are deeper than those agreed with the wider group are Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia and the United Arab Emirates.
Global oil demand will plateau at 105.6 million bpd by 2029, before contracting slightly in 2030, says the International Energy Agency, while oil supply capacity is due to vastly outpace demand by the end of the decade.
IEA sees supply capacity hitting nearly 114 million barrels per day (bpd) by 2030, or a full 8 million bpd above projected demand in its annual oil report.
OPEC+ decision aimed to support prices amid the continuing state of economic challenges on oil market. The group may reverse the course if global growth takes a better path.
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