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OPEC+ members have agreed to deep oil production cuts, in some cases until the end of 2025, as they battle to maintain prices amid weak global demand and increased supply from other parts of the world.
At its latest six-monthly meeting on Sunday, the cartel admitted it had no room yet to change its position on production cuts starting in November 2022, and pledged to withdraw more than 3 million barrels of crude per day from the market until the end of next year hold.
The group will bring back only a small portion of curtailed production this year, after eight members, including Saudi Arabia, Russia, Iraq and the United Arab Emirates, agreed to phase out some “voluntary” cuts from October.
Even this move could be halted and reversed at any time if market conditions deteriorate, Prince Abdulaziz bin Salman, the Saudi oil minister, warned in a briefing after the announcement. He added that while Opec+, a broader group that includes Russia and Kazakhstan, wants to increase output, this would depend on an improved trajectory for the global economy and moves by central banks to cut interest rates.
With uncertain prospects for oil demand from China and rising oil production from countries outside the OPEC+ alliance, especially the US and Canada, member states went further than expected in reassuring the market that they need production discipline would continue to show.
OPEC+ members “know that demand concerns remain,” said Amrita Sen, founder of research firm Energy Aspects. “They want to continue to provide stability.”
While the OPEC+ meeting was held virtually, eight key members, including Russia, Iraq and the UAE, met in Riyadh for face-to-face talks ahead of the event.
Sen also said it was notable that Opec+ had postponed potentially difficult negotiations on future production quotas until the end of next year. “They know this is not the right time to have that conversation,” she added.
Prince Abdulaziz suggested that the process of accurately assessing the capacity of Opec+ members had been delayed because Russia had been unable to share detailed data with the independent consultancies appointed to carry out the work.
On Friday, Brent crude traded at $80 a barrel, down from more than $90 in April as tensions rose in the Middle East.
The complex actions announced Sunday highlight the challenge the producer group faces in trying to maintain prices while maintaining harmony among members, some of whom are rushing to restart curtailed production.
Opec+ members are implementing three sets of supply cuts introduced since November 2022.
The first series, a group-wide cut of 2 million b/d due to expire at the end of the year, was extended by 12 months by extending members’ basic production quotas for another year. However, the group has granted an exemption to the UAE, which will be allowed to gradually increase base production by 300,000 barrels per day by 2025.
A series of voluntary production cuts by nine members including Saudi Arabia, Russia and the UAE, totaling 1.66 million b/d and due to expire in December, have also been extended until the end of 2025.
A third round of voluntary cuts, introduced in January and due to end this month, representing 2.2 million b/d, will be extended until September and then gradually phased out over the next 12 months, the Saudi Energy Ministry said in a separate statement. The ministry added that it could reverse the plan if market dynamics changed.
These three groups mean that Opec+ members are currently producing almost 6 million barrels per day less than their combined capacity, which represents around 6 percent of global supply.