OPEC+ members, spearheaded by Saudi Arabia and Russia, reached an agreement on Sunday to prolong voluntary oil output cuts of 2.2 million barrels per day into the second quarter, offering additional support to the market amidst concerns regarding global growth and escalating output from non-member nations.
Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC), confirmed the extension of its voluntary 1 million barrels per day (bpd) cut until the end of June, maintaining its output at approximately 9 million bpd.
Russia, leading the OPEC+ coalition, will reduce oil production and exports by an additional 471,000 bpd in the second quarter. Russian Deputy Prime Minister Alexander Novak disclosed that production cuts would play an increasingly significant role in this measure.
Geopolitical tensions and Houthi attacks on Red Sea shipping have contributed to the support for oil prices in 2024, although apprehensions regarding economic growth have exerted pressure. While the continuity of the cuts was widely anticipated, Russia’s unexpected announcement could further bolster prices.
UBS analyst Giovanni Staunovo noted the surprise from Russia, highlighting the potential impact of fully implementing the additional cuts on market dynamics and prices.
Brent crude settled at $83.55 a barrel on Friday, marking a 2% increase or $1.64 higher, demonstrating a more than 8% rise since the beginning of the year.
OPEC+ members individually announced the cuts on Sunday, with OPEC subsequently confirming the total 2.2 million bpd reduction. The cuts are anticipated to be gradually reversed in accordance with market conditions, as per Saudi state news agency SPA.
Jefferies analysts underscored the decision’s message of unity within the group and emphasized a gradual approach to supply restoration.
For the second quarter, Iraq, UAE, Kuwait, Algeria, Oman, and Kazakhstan have all committed to extending their respective output cuts, contributing to the collective effort to stabilize the market amidst evolving demand dynamics and increasing global supply.
The OPEC+ alliance has been implementing various output reduction measures since late 2022 to counterbalance rising production from non-member nations like the United States and navigate uncertainties surrounding demand amid economic fluctuations.
The cumulative pledged cuts by OPEC+ since 2022 amount to approximately 5.86 million bpd, representing around 5.7% of daily world demand based on Reuters’ calculations.