On Sunday, OPEC+ made the decision to extend most of its deep oil output cuts well into 2025, surpassing market expectations. The group aims to stabilize the market amidst sluggish demand growth, elevated interest rates, and increasing US production.
Oil prices currently hover around $80 per barrel, falling short of what many OPEC+ members require to balance their budgets. Concerns over sluggish demand in China, a major oil importer, have contributed to this situation, alongside rising oil inventories in developed economies.
Since late 2022, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, have implemented significant output reductions. Presently, OPEC+ members collectively reduce output by 5.86 million barrels per day (bpd), equivalent to approximately 5.7% of global demand, as reported by Reuters.
These cuts include 3.66 million bpd, initially set to expire by the end of 2024, and voluntary reductions of 2.2 million bpd by eight members, scheduled to end in June 2024.
In their recent agreement, OPEC+ extended the 3.66 million bpd cuts for an additional year, lasting until the end of 2025. Additionally, the 2.2 million bpd cuts will continue for three more months, concluding at the end of September 2024.
Furthermore, OPEC plans to gradually phase out the 2.2 million bpd cuts from October 2024 to September 2025, according to three OPEC+ sources.
An unnamed OPEC+ delegate remarked, “Now the market has clarity for almost 1.5 years.”