Daily Reports
OPEC+ Extends Production Cuts Amid Economic and Geopolitical Uncertainty
The OPEC+ alliance has officially announced an extension of its existing oil production cuts to stabilize prices in a volatile global market. The comprehensive decision emerged from a unique meeting format where some members met in Riyadh and others joined via videoconference. While the core decision extends production cuts from January 1, 2025, to December 31, 2025, additional voluntary cuts by eight countries, including Saudi Arabia and Russia, are set to continue until at least September 2024 for some, and December 2025 for others.
Significant Impact on Global Oil Supply
The Organization of the Petroleum Exporting Countries (OPEC) and allied countries, collectively known as OPEC+, are maintaining nearly six million barrels of oil underground. This drastic measure, undertaken to capitalize on a scarcity of supply, aims to support and potentially boost crude oil prices. Besides Saudi Arabia, key participants in these voluntary cuts are Russia, Iraq, the United Arab Emirates (UAE), Kuwait, Kazakhstan, Algeria, and Oman. Notably, the UAE will gradually increase its production by 300,000 barrels per day from January to September 2025, enabling it to balance facade cuts with incremental volume boosts.
Challenges and Future Projections
Despite the strategic moves by OPEC+ to stabilize the market, there remains a degree of discord within the group concerning production quotas. Past disagreements have led to events like Angola's departure from OPEC at the end of 2023 over dissatisfaction with its assigned production target. The meeting also highlighted lingering issues about the accuracy of production levels; as analysts suggest that actual market supply could be higher than reported figures.
Market analysts predict that maintaining stable prices without causing an oversupply will be a significant challenge for OPEC+ in the coming years. The International Energy Agency (IEA) has expressed a less optimistic outlook compared to OPEC, pointing to factors including inflation, a gloomy economic forecast, and rising competition from non-member oil producers like the United States. These elements create a 'difficult' environment for OPEC+ as they navigate through global demand uncertainties and strive to keep prices stable around $80 per barrel.
- OPEC+ has a history of adjusting its production policies to manage market conditions. Since late 2022, the alliance has made several production cuts in response to increasing output from non-OPEC countries and concerns about global oil demand. The current production cuts by OPEC+ represent around 5.7% of the global demand.
- Venues for OPEC+ meetings have also seen changes, with the latest meeting transitioning from an in-person format in Vienna to an online session, accommodating the convenience of all member states. This diversification in meeting formats reflects the pragmatic approach OPEC+ takes to ensure decision-making is timely and inclusive.
- Despite their cohesive strategies, significant **controversies** have frequently erupted over production capacities of member countries. Accurate estimates for each country's production capacity are crucial as they form the base numbers for the cuts and manage expectations within the alliance. Addressing discrepancies in these numbers is essential for the alliance to maintain its credibility and effectiveness in influencing global oil markets.
