OPEC+ has extended oil supply cuts until mid-year to prevent a global glut and support prices.
The new restrictions, which on paper amount to about 2 million barrels a day, will be in place until the end of June, according to statements from members such as Saudi Arabia, which accounts for half of the promised cuts. Russia has promised to step up its role by focusing on cutting production rather than exports.
Traders and analysts had widely expected an extension of the agreement, believing it was needed to offset a seasonal lull in global fuel consumption and surging production from several OPEC+ rivals, most notably US shale drillers. The need for caution is reinforced by the uncertain economic outlook in China.
Ample supplies have kept global oil prices near the $80 a barrel mark this year, even as conflict in the Middle East weighs heavily on regional shipping. While that brings some relief to consumers after years of rampant inflation, prices may be too low for many members of the Organisation of Petroleum Exporting Countries and its partners.
Riyadh needs crude oil price above $90 a barrel as it spends billions on an economic transformation that includes futuristic cities and sports tournaments, according to Fitch Ratings.
The latest production curbs, which deepen cuts made last year, will be “gradually returned depending on market conditions” after the second quarter, the country said in state media.
Russia, which has the unique right to share restrictions on the production and export of crude oil and refined products, will put more emphasis on cutting crude output next quarter, Deputy Prime Minister Alexander Novak said on 3 March.
That pledge may give Riyadh some satisfaction. Saudi Energy Minister Prince Abdulaziz bin Salman last year expressed disappointment that Moscow had not agreed to a production cut that has a more direct impact on the balance of the global market than changes in exports. Novak told reporters:
Russia will implement additional voluntary cuts in oil production and exports by a combined 471,000 bpd in the second quarter of 2024 in coordination with some OPEC+ member countries.
In April, the reduction in oil production will be 350,000 bpd, while exports will be 121,000 bpd, the deputy prime minister said. In May, the figures will be 400,000 barrels and 71,000 barrels respectively, and in June the production cut will be 471,000 bpd, he said.
The reduction in exports will be based on average export levels for May-June 2023, Novak explained. In the future, Russia plans to gradually restore additional volumes of oil production and export cuts within OPEC+ depending on market conditions, he added.
Kazakhstan and Iraq combined produced several hundred thousand barrels a day more than their quotas in January, but have promised to increase compliance and even offset initial overproduction.
The group’s decision to extend restrictions into the second quarter may have been widely expected, but OPEC+ is likely to face tougher choices at its next meeting on 1 June, when ministers will set policy for the second half of the year.
Forecasts from the International Energy Agency in Paris suggest that with global oil demand growth slowing and new supplies from the Americas increasing, OPEC+ will have to keep cutting production throughout the year.
