OPEC+ agreed to extend its oil production cuts into 2025, while also setting a timeline for gradually winding down some of those curbs later this year.
The agreement reached in Riyadh on Sunday exceeds market
expectations in some ways, extending so-called “voluntary” cuts from key
members including Saudi Arabia and Russia well into next year. However, it also
begins rolling back those supply reductions in October, earlier than some
OPEC-watchers had assumed.
Prior to the meeting, traders and analysts had widely
expected OPEC+ to prolong its supply reductions in order to offset soaring
output from its rivals, with some predicting they would be maintained until the
end of 2024. Under the new agreement, the eight nations participating in these
additional curbs will have added about 750,000 barrels a day to the market by
January.
Crude prices have recently been in decline amid a fragile
economic outlook in top consumer China and doubts about the pace of
interest-rate reductions in major industrialized economies. Brent futures
settled at $81.62 a barrel on May 31, a drop of 7.1% for the month.
The OPEC+ agreement prolongs roughly 2 million barrels a day
of cuts, which have played a key role in supporting crude prices above $80 a
barrel this year but were set to expire at the end of June. The curbs will
continue in full in the third quarter then be gradually phased out over the
following 12 months, according to a statement from the Saudi Energy Ministry.
Those “voluntary” cuts by the Organization of Petroleum
Exporting Countries and its allies were in addition to an earlier group-wide
agreement capping crude output at about 39 million barrels a day, which ran
until the end of this year. The alliance said in a statement that it also
agreed to prolong that accord to the end of 2025.
“It removes a significant chunk of oil from our balances
both this year and next,” said Amrita Sen, director of research and co-founder
of Energy Aspects Ltd. The deal “keeps OPEC+ in charge of the market.”
Sunday’s deal suggests OPEC+ leader Saudi Arabia, which
hosted the meeting in its capital after initial plans for a gathering in Vienna
were canceled, is attempting to strike a balance between supporting crude
markets and easing the production restraints against which some members have
chafed repeatedly.
Lower oil prices this year have improved the economic
outlook by offering some relief to central banks grappling with persistent
inflation. Yet they also threaten revenue for producers like Saudi Arabia,
which needs prices close to $100 a barrel to fund the ambitious spending plans
of Crown Prince Mohammed bin Salman, the International Monetary Fund estimates.
In parallel to the OPEC+ meeting on Sunday, the Saudi
government completed a $12 billion sale of shares in state oil giant Aramco,
raising funds to help pay for a massive economic transformation plan.
The agreement resolves, albeit temporarily, a potentially
fraught debate on some nations’ oil capacity. The alliance had commissioned an
external review of its members capabilities with the intention of resetting
baseline production levels used to measure cuts in 2025.
Several major exporters were seeking to have their levels
upgraded, possibly posing a risk to the group’s efforts to stabilize world
markets. The deadline for completion of that process has now been pushed back
by a year to November 2026.
However, the United Arab Emirates was given a 300,000
barrel-a-day boost to its production target for next year, making it the clear
winner from Sunday’s negotiations.
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