OPEC+ oil producers agreed on Thursday to voluntary production cuts totalling about 2.2 million barrels per day (bpd) for early next year. Saudi Arabia, which extended its current voluntary cut, headed the agreement, according to Reuters.
Baseline global oil prices declined about 2 per cent, partly because the cuts were voluntary, but also because investors expected before the meeting that additional supply cuts could be deeper.
Saudi Arabia, Russia and other OPEC+ members, which produce more than 40 per cent of the world’s oil, met online on Thursday to discuss supply policy. JP Morgan analyst Christyan Malek stated that the market reaction reflected a distrust in the cuts’ full effectiveness.
However, setting a new framework for each member to deliver on its cut reflects the degree of trust and cohesion among the members; case in point, the fact Brazil is joining is testament to the strength in numbers for OPEC+.
The group discussed production in 2024 amid forecasts that the market would face a potential surplus, with Saudi Arabia’s 1 million bpd cut due to end next month.
OPEC+ production of about 43 million bpd already reflects a production cut of about 5 million to support prices and stabilise the market. The eight producers’ total production limits amount to 2.2 million bpd, OPEC announced in a statement following the meeting. The extension of voluntary production cuts by Saudi Arabia and Russia by 1.3 million bpd is included in that figure.
OPEC+ is focused on cutting production with prices falling from nearly $98 at the end of September, as well as looming concerns about slowing economic growth in 2024 and expectations of a supply glut.
The additional 900,000 bpd cuts announced on Thursday include a 200,000 bpd cut in fuel exports from Russia, with the remainder to be divided among the six members.
Russian Deputy Prime Minister Alexander Novak announced that Russia would voluntarily cut its production of crude oil and petroleum products. At the same time, the UAE said it had agreed to cut production by 163,000 bpd; and Iraq stated it would cut a further 220,000 bpd in the first quarter.
Saudi Arabia, Russia, UAE, Iraq, Kuwait, Kazakhstan and Algeria were among the producers who announced that cuts would be phased out after the first quarter, if market conditions allowed.
The International Energy Agency (IEA) forecasts a slowdown in demand growth in 2024 as “the last phase of the pandemic economic rebound dissipates and as advancing energy efficiency gains, expanding electric vehicle fleets and structural factors reassert themselves.”
OPEC+ has also invited Brazil, one of the top 10 producers, to join the group. The country’s energy minister stated that he hoped to join in January. The meeting coincides with the opening of the UN COP28 climate summit hosted by OPEC member United Arab Emirates.
