OPEC+ Extends Major Oil Production Cuts Through 2025 to Stabilize Global Market

OPEC+ has announced an extension of its significant oil production cuts until 2025, aiming to stabilize the market amid sluggish demand growth, high interest rates, and rising U.S. oil production. The group will maintain its current reduction of 5.86 million barrels per day (bpd), with specific cuts being extended and gradually phased out.

This decision highlights OPEC+’s commitment to market stabilization. Facing slow demand growth, high interest rates, and increased U.S. oil production, the group aims to support oil prices by tightly managing supply.

OPEC+ is currently implementing cuts amounting to 5.86 million bpd, about 5.7% of global demand. This includes mandatory reductions of 3.66 million bpd, initially set to expire at the end of 2024, and voluntary cuts by eight members totaling 2.2 million bpd, initially scheduled to end in June 2024.

The mandatory cuts of 3.66 million bpd will now extend until the end of 2025. Meanwhile, the voluntary cuts of 2.2 million bpd will be extended until the end of September 2024, after which these reductions will be gradually phased out from October 2024 to September 2025.

Saudi Energy Minister Prince Abdulaziz bin Salman emphasized that the group’s strategy is to wait for more favorable economic conditions before changing their production approach. Specifically, OPEC+ is looking for lower interest rates and consistent global economic growth to ensure a stable market environment.

OPEC anticipates that demand for OPEC+ crude will average 43.65 million bpd in the latter half of 2024. This scenario suggests a stock drawdown of 2.63 million bpd if the group’s output remains at April’s rate of 41.02 million bpd. However, this drawdown is expected to decrease as the 2.2 million bpd voluntary cuts start phasing out in October 2024.

In contrast, the International Energy Agency (IEA) estimates that the demand for OPEC+ oil, combined with stock levels, will average much lower at 41.9 million bpd in 2024. This discrepancy highlights the differing perspectives on future market dynamics between oil producers and consumers.

The extension of production cuts by OPEC+ reflects a strategic move to manage supply and support oil prices amid uncertain economic conditions.