The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, have announced a significant extension of oil production cuts into 2025. This decision comes in response to several factors contributing to market instability, including sluggish demand growth, elevated interest rates, and the increasing production of oil in the United States.
Currently, OPEC+ is maintaining a reduction of 5.86 million barrels per day (bpd) in oil production. This reduction, which represents approximately 5.7% of global demand, consists of mandatory cuts totaling 3.66 million bpd and voluntary cuts by eight member countries amounting to 2.2 million bpd. The mandatory cuts, initially set to expire at the end of 2024, will now be extended until the end of 2025. The voluntary cuts, originally scheduled to end in June 2024, will be extended by three months, up to the end of September 2024. Subsequently, these voluntary reductions will be gradually phased out over the following year, from October 2024 to September 2025.
Saudi Energy Minister Prince Abdulaziz bin Salman emphasized that OPEC+’s strategy is to wait for more favorable economic conditions before adjusting their production approach. The group is specifically looking for lower interest rates and more consistent global economic growth to ensure a stable market environment.
OPEC projects that demand for OPEC+ crude will average 43.65 million bpd in the latter half of 2024, leading to an expected stock drawdown of 2.63 million bpd if the group’s output remains at April’s rate of 41.02 million bpd. However, as the voluntary cuts of 2.2 million bpd begin to phase out in October 2024, this drawdown is anticipated to decrease.
In contrast, the International Energy Agency (IEA) estimates a lower demand for OPEC+ oil, combined with stock levels, averaging 41.9 million bpd in 2024. This variance underscores the differing perspectives on future market dynamics between oil producers and consumers.
The extension of production cuts by OPEC+ reflects a strategic move to manage supply and support oil prices amidst uncertain economic conditions. By maintaining a cautious approach and closely monitoring market developments, OPEC+ aims to contribute to a more stable and balanced oil market in the years ahead.
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