Report: OPEC+ Extends Oil Output Cuts into Third Quarter to Bolster Prices

4 June, 2024
Summary :

Oil prices hover around $80 per barrel, falling below the threshold necessary for many OPEC+ members to balance their budgets. Concerns persist over sluggish demand growth in China, the world's leading oil importer, putting downward pressure on prices.

Extends Oil Output Cuts into Third Quarter to Bolster Prices

On Sunday, OPEC+ reached an agreement to prolong the majority of its significant oil production cuts through 2024, with a gradual phase-out scheduled for 2025. This move aims to bolster the market amidst subdued global demand growth, elevated interest rates, and increasing competition from U.S. production.

Oil prices are currently trading close to $80 per barrel, falling short of the levels required by many OPEC+ members to achieve budget balance. Concerns over sluggish demand expansion in China, the leading oil importer, coupled with mounting oil inventories in developed nations, have exerted downward pressure on prices.

Since late 2022, the coalition of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, known collectively as OPEC+, has implemented a series of significant output reductions.

Currently, OPEC+ members are reducing output by a combined total of 5.86 million barrels per day (bpd), equivalent to approximately 5.7% of global demand. These cuts comprise 2 million bpd by all OPEC+ participants, the initial voluntary reductions by nine members amounting to 1.66 million bpd, and the subsequent voluntary cuts by eight members totaling 2.2 million bpd.

OPEC+ announced the extension of the first round of cuts until the end of 2025, shifting the original deadline from the end of 2024, as stated in a group statement. Additionally, sources within OPEC+ disclosed the agreement to prolong the third round of voluntary cuts through the third quarter of 2024. Further details are currently being finalized and are expected to be released on Sunday.

In the second round of voluntary cuts, Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, the United Arab Emirates, and Gabon participated, while the same countries, excluding Gabon, took part in the third round.

Furthermore, the group has approved an increase in the United Arab Emirates' production quota for 2025, raising it from the current level of 2.9 million bpd to 3.5 million bpd.

OPEC+ has also pushed back the deadline for an independent assessment of its members' production capacities from June 2024 to the end of November 2025. These figures will serve as guidance for determining the reference production levels for 2026.

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