The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, met on Sunday and agreed to a relatively complicated series of cuts that will extend certain curtailments into next year but phase out others.
Oil prices were down on Monday following the deal. Both futures contracts were off by $2, with Brent trading around $79.30 a barrel and WTI at $75.
OPEC has been cutting output since late 2022, and currently the group, along with allies like Russia, has curtailed some 5.86 million bpd of production, or roughly 5.7% of global oil demand.
The plan had included 3.66 million bpd of cuts that would expire at the end of 2024 and voluntary cuts by eight members, totaling 2.2 million bpd that were set to expire at the end of June.
Sunday’s deal will extend the 3.66 million bpd of cuts until the end of 2025 and prolong the 2.2 million bpd of voluntary cuts by three months, until the end of September. Those cuts will then be phased out from October 2024 to September 2025. Clear as mud, right?
The group has postponed discussions on capacities until November of next year. The UAE, which had been pushing for a higher production quota, will be allowed to gradually raise production by 0.3 million bpd, up from 2.9 million bpd currently.
OPEC+ is closely watching sticky inflation and for a better trajectory of economic growth as well as demand. Its own demand estimates differ from other major forecasting groups like the International Energy Agency (IEA). OPEC+ estimates demand for its crude will average 43.65 million bpd for the second half of this year while the IEA is forecasting 41.9 million bpd of demand in 2024.
Meanwhile, OPEC is forecasting global oil demand growth for the year to grow by 2.25 million bpd this year, much higher than the IEA’s forecast of 1.1 million bpd of demand growth.
“This time around, the timetable is a message to markets that these countries are willing to at least stay the course—even if disinclined to cut output further—to support prices by continuing to restrain their output for longer if necessary. At least for a time, anyway,” said Paul Tossetti, executive director at S&P Global Commodity Insights
“An increase in quota does not automatically translate into more supply,” Tossetti added. “The United Arab Emirates, for instance, is participating in additional voluntary cuts at this time. But the adjustment does change the share of the OPEC+ pie, giving the UAE a larger slice,” he said.
OPEC has also kept a close eye on the United States, where production has consistently surprised to the upside of analysts’ forecast in recent years. Growth is expected to be much slower this year, with the U.S. Energy Information Administration forecasting an increase in production of just 270,000 bpd. That’s down from more than 1 million bpd of growth last year, which was a huge surprise to the upside from analysts’ forecast earlier in the year.
Right now, the United States seems less likely to come in well over estimates, as it did in the past. This comes in part amid a wave of consolidation, which has eaten up some of those private producers who were driving growth.
One interesting tidbit that broke last week, just ahead of this meeting, was news of Aramco’s secondary offering. On Sunday, demand for shares was more than stock on offer within hours of kicking off the sale. The deal could raise up to $13.1 billion.
The next OPEC+ meeting is set for Dec. 1. Mark your calendars.
