OPEC+ Prolonged its Oil Supply Curbs to Support Prices

OPEC+ Production Cuts

The Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia and allies, including Russia have been implementing a series of output reductions schemes to support oil prices. On Sunday, they decided to extend most of them into 2025, as prices have declined over the past couple of months after the Q1 rally.

In particular, the group's initial 2 million barrels per day (mbpd) cuts for 2024 have been extended into the next year, by keeping the output quotas targets roughly unchanged [1]. Some members had also agreed at a later stage to additional cuts of 1.66 mbpd for this year, which have now also been extended into 2025. The most recent voluntary reductions of 2.2 mbpd that were set to expire at the end of June, were prolonged to the third quarter. This would keep the total output cuts to nearly 5.9 mbpd and almost 6% of total global production. That last tranche will be gradually phased out during a 12-month period, starting in October. [2]

Members exhibited strong solidarity by prolonging most of their output reductions, in a move that could tighten the market and support prices. In its latest May report (MOMR), OPEC expects demand for OPEC+ crude oil at about 43.2 mbpd this year and 44 mbpd in 2025, pointing to a wide deficit. [3]

On the other hand, the group will start returning oil into the market from the fourth quarter onwards and the detailed schedule could hinder lower production levels, should they become necessary. Furthermore, compliance has generally been loose in the past, while members essentially avoided the thorny issue of capacity, with new levels not being implemented until 2026.

Unlike OPEC that expects stable global demand this year, the International Energy Agency (IEA) sees a substantial slowdown, projecting demand growth of just 1.1 mbpd. At the same time, the agency projects higher world production this year and the next, driven by non-OPEC countries [4]. These dynamics could oil prices under further pressure.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 02 Jun 2024 https://www.opec.org/opec_web/en/press_room/7337.htm

2

Retrieved 02 Jun 2024 https://www.opec.org/opec_web/en/press_room/7339.htm

3

Retrieved 02 Jun 2024 https://www.opec.org/opec_web/en/publications/338.htm

4

Retrieved 19 Jul 2024 https://www.iea.org/reports/oil-market-report-may-2024

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