Brent
crude oil prices LCOc1 have been trading near $80 per barrel in
recent days, below what many OPEC+ members need to balance their budgets. Worries over slow demand growth in top oil
importer China have weighed on prices alongside rising oil stocks in developed
economies.
The
Organization of the Petroleum Exporting Countries and allies led by Russia,
together known as OPEC+, have made a series of deep output cuts since late
2022. OPEC+ members are currently cutting output by a total of 5.86
million barrels per day (bpd), or about 5.7% of global demand. Those include 3.66 million bpd of cuts,
which were due to expire at the end of 2024, and voluntary cuts by eight
members of 2.2 million bpd, expiring at the end of June 2024.
On
Sunday, OPEC+ agreed to extend the cuts of 3.66 million bpd by a year
until the end of 2025 and prolong the cuts of 2.2 million bpd by three months
until the end of September 2024. OPEC+
will gradually phase out the cuts of 2.2 million bpd over the course of a year
from October 2024 to September 2025.
“We are
waiting for interest rates to come down and a better trajectory when it comes
to economic growth … not pockets of growth here and there,” Saudi Energy
Minister Prince Abdulaziz bin Salman told reporters.
OPEC expects
demand for OPEC+ crude to average 43.65 million bpd in the second half of
2024, implying a stocks drawdown of 2.63 million bpd if the group maintains
output at April’s rate of 41.02 million bpd. The drawdown will be less
when OPEC+ starts phasing out the 2.2 million bpd voluntary cuts in
October.
The
International Energy Agency, which represents top global consumers, estimates
that demand for OPEC+ oil plus stocks will average much lower levels of
41.9 million bpd in 2024. “The deal
should allay market fears of OPEC+ adding back barrels at a time when
demand concerns are still rife,” said Amrita Sen, co-founder of Energy Aspects
think tank.
Prince
Abdulaziz said OPEC+ could pause the unwinding of cuts or reverse them if
demand wasn’t strong enough.
Analysts
had expected OPEC+ to prolong voluntary cuts by a few months due to
falling oil prices and sluggish demand. But many analysts had also predicted
the group would struggle to set targets for 2025 as it had yet to agree
individual capacity targets for each member, an issue that had previously
created tensions.
The
United Arab Emirates, for instance, has been pushing for a higher production
quota, arguing its capacity figure had
been long under-estimated. But in a surprise development on
Sunday, OPEC+ postponed the discussions on capacities until November 2025
from this year. Instead, the group
agreed a new output target for the UAE which will be allowed to gradually raise
production by 0.3 million bpd, up from the current level of 2.9 million.
OPEC+
agreed that it would use independently assessed capacity figures as guidance
for 2026 production instead of 2025 – postponing a potentially difficult
discussion by one year.
Prince
Abdulaziz said one of the reasons for the delay was difficulties for
independent consultants to assess Russian data amid Western sanctions on Moscow
for its war on Ukraine. The meetings on Sunday lasted less than four hours
– relatively short for such a complex deal.
OPEC+ sources said Prince Abdulaziz,
the most influential minister in the OPEC group, had spent
days preparing the deal behind the scenes. He invited some key ministers –
mostly those who contributed to the voluntary cuts – to come to the Saudi
capital Riyadh on Sunday despite meetings being largely scheduled online.
The countries which have made
voluntary cuts to output are Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia,
Saudi Arabia and the United Arab Emirates. “It should be seen as a huge
victory of solidarity for the group and Prince Abdulaziz,” said Sen, adding the
deal would ease fears of Saudi Arabia adding barrels back due to
Aramco’s share listing.
Saudi
Arabia’s government has filed papers to sell a new stake in
state oil giant Aramco that could raise as much as $13.1 billion, a landmark
deal to help fund Crown Prince Mohammed bin Salman’s plan to diversify the
economy.
OPEC+ will hold its next meeting on Dec. 1,
2024.