London, CNN — The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have decided to extend production cuts announced last year into 2025. This decision was made on Sunday and involves key oil-producing nations.
Details of the Extension
- 1.65 Million Barrels per Day: Initially announced in April 2023, this cut will now continue until the end of 2025. It was originally set to expire at the end of this year.
- 2.2 Million Barrels per Day: Announced in November, this cut will extend until the end of September this year, after which it will be gradually phased out by September 2025. It was initially due to expire at the end of this month.
- Previous Reductions: These cuts are in addition to the previously agreed reductions of 3.66 million barrels per day from 2022 and 2023. This strategy, led by Saudi Arabia and Russia, aims to counteract slowing demand and increased output from the United States.
Production Requirements and Adjustments
- 2025 Production Quotas: The group released its production requirements for member and nonmember countries for 2025, which remain largely unchanged from this year.
- United Arab Emirates: The UAE’s production quota will increase by 300,000 barrels per day, gradually phased in from January to September 2025.
Market Impact
- Supply Restrictions: These decisions mean OPEC+ will continue to restrict supply for the next 18 months, with a gradual reintroduction of some oil later this year.
- Price Trends: Despite these cuts, global oil prices have dropped by about 11% since reaching a five-month high in early April. As of 4:30 a.m. ET on Monday:
- Brent Crude: Slightly up by 0.1%, trading at $81 a barrel.
- West Texas Intermediate Crude: Also up by 0.1%, trading at $77 a barrel.
Saudi Arabia needs Brent crude to trade at around $81 a barrel to balance its budget, according to the International Monetary Fund.
Factors Affecting Prices
- US Oil Output: Record-high US oil production has increased global supply.
- Demand Concerns: Weak demand in China and other major economies has contributed to subdued prices. The International Energy Agency (IEA) recently lowered its forecast for global oil demand growth this year by 140,000 barrels per day to 1.1 million barrels per day.
Despite these factors, a supply crunch could occur. The IEA expects global supply to increase by just 580,000 barrels per day this year. The Paris-based agency predicted a potential supply deficit in 2024 if OPEC+ extends its cuts throughout the year.
Saudi Aramco Share Sale
Coinciding with OPEC+’s decision, Saudi Arabia is selling a small portion of shares in its oil company, Aramco. The government is selling less than 1% of the Riyadh-listed company, potentially raising $13 billion for economic diversification projects.
