OPEC+ (the Organization of the Petroleum Exporting Countries and its allies) has agreed to extend its deep oil output cuts well into 2025 in an effort to shore up the oil market. The group is currently cutting production by 5.86 million barrels per day (bpd), or about 5.7% of global demand.
The key elements of the OPEC+ deal are:
Extension of the 3.66 million bpd in cuts until the end of 2025 (previously due to expire at the end of 2024)
Extension of the 2.2 million bpd in voluntary cuts by 8 members until the end of September 2024 (previously expiring at the end of June 2024)
Gradual phasing out of the 2.2 million bpd voluntary cuts over a year from October 2024 to September 2025
A new output target for the UAE, allowing it to gradually raise production by 0.3 million bpd
The decision comes as oil prices have been trading around $80 per barrel, below what many OPEC+ members need to balance their budgets. Concerns over slow demand growth, especially in top importer China, and rising rival U.S. production have weighed on prices.
OPEC+ expects demand for its crude to average 43.65 million bpd in the second half of 2024, implying a significant stocks drawdown if the group maintains current output levels. However, the drawdown will be less once the 2.2 million bpd voluntary cuts start being phased out.
The deal was reached relatively quickly, with the meeting lasting less than 4 hours, suggesting strong coordination and preparation by Saudi Energy Minister Prince Abdulaziz bin Salman, the most influential minister in OPEC.