Context:
Recently, OPEC+ has decided to extend significant oil output cuts until 2025 in response to slow demand growth, increased interest rates, and the growing oil production from the United States.
Key Highlights of the OPEC+ meeting:
OPEC+ has decided to extend the 3.66 million barrels per day (bpd) production cuts until the end of 2025. Additionally, the ongoing 2.2 million bpd cuts will continue until September 2024, after which they will be gradually phased out over the next year, ending in September 2025.
- The United Arab Emirates (UAE), which was demanding a higher production quota will raise production by 0.3 million bpd, reaching 3.2 million bpd.
- Discussions on capacities were postponed until November 2025 due to difficulties assessing Russian data amid Western sanctions.
- Independent consultants will assess production capacities for 2026 instead of 2025
- Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the United Arab Emirates have made voluntary output cuts.
Major reason behind production cuts:
- Concerns have arisen regarding the slow growth in demand from China, the world’s largest importer of oil.
- The buildup of oil inventories in developed nations adds to the downward pressure on prices, reflecting an imbalance between supply and demand in the global oil market.
About OPEC+ Organization:
- The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
- Currently OPEC has 12 members: – Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, UAE, and Venezuela.
- In 2016, largely in response to dramatically falling oil prices driven by significant increases in U.S. shale oil output, OPEC signed an agreement with other oil-producing countries to create what is now known as OPEC+.
- The list of non-OPEC nations includes Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Russia, Mexico, Malaysia, South Sudan, Sudan and Oman.
Current status of oil production and recent changes:
- OPEC+ is currently reducing oil output by 5.86 million barrels per day (bpd), equivalent to about 5.7% of global demand.
- OPEC expects demand for OPEC+ crude to average around 43.65 million bpd in the second half of 2024, i.e. a stock drawdown of 2.63 million bpd if it maintains output at April’s rate of 41.02 million bpd.
The International Energy Agency forecasts that demand for OPEC+ oil, including stocks, will average significantly lower at 41.9 million barrels per day in 2024.