OPEC+ agreed on Sunday to extend crude output until 2025 as it tries to support the market amid rising demand, higher interest rates and rising output from rival US.
Brent crude oil has been trading near $80 a barrel in recent days, below what most OPEC+ members need to balance their budgets. Concerns about the slow growth of demand in the top oil importer China weighed on the price, along with the rise in oil inventories in developed countries.
The Organization of the Petroleum Exporting Countries and its allies, led by Russia, and OPEC+, have announced several output cuts since the end of 2022.
OPEC+ members currently produce a total of 5.86 million barrels (bpd), or about 5.7% of global demand.
It includes a cut of 3.66 million cubic meters that will be completed by the end of 2024 and eight member voluntary cuts of 2.24 million cubic meters that would be complete by end of June 2024.
On Sunday, OPEC+ agreed to extend the cut of 3.66 million cubic meters until the end of 2025 and extend the cut of 2.2 million cubic meters by three months until the end of September 2024.
OPEC+ will cut 2.2 million cubic meters during the year from October 2024 to September 2025.
“We expect lower interest rates and a better trajectory in economic growth,” Saudi Energy Minister Prince Abdulaziz bin Salman told reporters.
OPEC expects OPEC+ crude oil demand to average 43.65 million cubic meters in the second half of 2024, with stocks falling by 2.63 million cubic meters if the group maintains its April output of 41.02 million cubic meters.
That cost will be lower when OPEC+ begins a voluntary cut of 2.2 million cubic meters in October.
The International Energy Agency, which represents the world’s top consumers, expects demand for OPEC+ oil and stocks to average 41.9 million cubic meters in 2024.
“The agreement should allay market fears of adding barrels at a time when concerns about OPEC+ demand are still simmering,” said Amrita Sen, founder of Energy Aspects, a think tank.
Prince Abdulaziz said OPEC+ could suspend or reverse cuts if demand is not strong enough.
Analysts had expected OPEC to extend voluntary cuts for several months due to lower oil prices and weaker demand.
Many analysts predict the group will struggle to set targets until 2025 because it has yet to agree on specific options for each member, fueling tensions.
The United Arab Emirates, for example, is demanding higher production quotas, saying capacity figures are far from predictable.
But in a surprise move on Sunday, OPEC+ postponed discussions on options from this year until November 2025.
Instead, the group agreed on a new production target for the UAE, which will see output rise by 0.3 million cubic meters from the current level of 2.9 million.
OPEC+ has agreed to use independently assessed capacity figures as a guideline for production from 2025 to 2026 – potentially delaying the bitter dispute by a year.
One of the reasons for the delay, Prince Abdulaziz said, was that independent advisers had difficulty evaluating Russian data amid Western sanctions imposed by Moscow against Ukraine.
Sunday’s meeting lasted less than four hours – too short for such a complex deal.
OPEC+ sources said Prince Abdulaziz, the group’s most influential minister, spent days preparing the deal behind the scenes.
He invited several key ministers, especially those who contributed to the voluntary cuts, to attend the Saudi capital Riyadh on Sunday, although the meeting was held online.
Countries that have voluntarily reduced production are Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia and the United Arab Emirates.
“This should be seen as a big win for the alliance for the group and Prince Abdulaziz,” he said, adding that the deal would ease Saudi Arabia’s fears of adding barrels due to Aramco.
Saudi Arabia’s government has proposed to sell a new stake in state oil giant Aramco that could raise $13.1 billion, a key deal to finance Prince Mohammed bin Salman’s plans to diversify the economy.
