The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, announced on Sunday that there will be no changes to its planned oil production cuts for this year. Previously, the alliance had agreed to a 2 million barrels-per-day decline in October, and some OPEC+ members had also announced voluntary drops of just over 1.6 million barrels per day in April. Russia’s Deputy Prime Minister Alexander Novak stated that all voluntary cuts, which were initially set to expire after 2023, will now be extended until the end of 2024.
Saudi Arabia Announces Further Voluntary Declines
Saudi Arabia’s energy ministry announced that Riyadh will implement an additional voluntary one-month 1 million-barrel-per-day cut starting this July, which can be extended. This will bring the kingdom’s total voluntary declines to 1.5 million barrels per day over the period, reining in its production to 9 million barrels.
Review Baselines for 2025
The producers’ alliance also agreed to review baselines for 2025, following a study of countries’ output capacities by oil analysts IHS, Wood Mackenzie, and Rystad Energy. A higher baseline translates into a higher output ceiling, and baselines are often reused in new iterations of OPEC+ agreements, meaning they could bind producers longer term. OPEC heavyweight UAE has been long vying for an upward revision to its baseline, receiving part of such a concession in July 2021.
The move of the 23-country alliance follows contentious talks that dragged well into the night on Saturday, as well as a more-than four-hour Sunday meeting of the alliance’s Joint Ministerial Monitoring Committee, which recommends, but does not implement, policy. At stake for OPEC+ is a battle to reconcile an outlook of tighter supply in the second half of the year, current macro-economic and inflationary concerns, and intergroup diplomacy.
Saudi oil minister Prince Abdulaziz bin Salman in late May warned oil market speculators to “watch out,” in a comment widely read as heralding another supply cut. However, it remains to be seen if the 2024 reduction in output will offer long-term support to current oil futures prices when markets open on Monday, following months of pressure from global financial turmoil since the start of the year.
Brent futures most recently settled at $76.13 per barrel on Friday, with several OPEC+ delegates noting the deepening divide between prices and supply-demand fundamentals. OPEC+ also announced in a statement that it will limit combined oil production to 40.463 million barrels per day over January-December 2024.