The OPEC+ countries agreed on Sunday to extend their current production cuts to support oil prices, at a time of great economic and geopolitical uncertainty, while preparing to reopen the tap of black gold.
On the one hand, the group of 22 members will “extend the total level of crude oil production (…) from January 1, 2025 to December 31, 2025”, the alliance said in a press release.
On the other hand, eight of these countries will continue their additional reductions voluntarily, some of them until September 2024 “before being gradually phased out” and others until December 2025.
The 22 ministers of the Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia and their allies led by Moscow, who entered into an agreement called OPEC+ in 2016 to better influence the market, met in a format unprecedented, some having traveled to Riyadh and others participating by videoconference.
The alliance-wide cuts amount to some two million barrels per day (bpd). By adding several waves of voluntary reductions, OPEC+ is currently keeping nearly six million barrels underground.
In addition to Saudi Arabia, which is making the biggest effort, these are Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman.
This strategy, started at the end of 2022 in the face of falling prices, aims to take advantage of the scarcity of supply to boost prices.
– “Nice surprise” –
OPEC+ also agreed to increase the production target of the United Arab Emirates, to the tune of 300,000 bpd, gradually from January to September 2025.
This increase allows Abu Dhabi to keep façade sections, while increasing its volumes.
Read more
After this lightning meeting, Giovanni Staunovo, analyst at UBS interviewed by AFP, welcomed “a good surprise” while observers expected a shorter extension and a battle of numbers.
Finally, the examination of the quotas of the entire group is postponed until the end of 2025, “which eliminates possible tensions”.
This question regularly provokes strong disagreements: certain countries holding significant production reserves or others simply wishing to pump more are reluctant to do without lucrative oil revenues.
Angola thus left the OPEC ship at the end of 2023, unhappy with the production target assigned to it.
– Challenging environment” –
There is also the concern about the accuracy of production levels. According to Mukesh Sahdev, analyst at Rystad Energy, OPEC+ faces “a major challenge”: “the barrels actually put on the market are probably higher than what is recorded,” he notes. Enough to derail the cartel’s strategy.
By 2025, OPEC+ now has the challenge of reopening the floodgates without flooding the market and causing prices to collapse.
A real headache, particularly at a time when questions remain about the resilience of global demand.
Since the last meeting in November, the group has been able to keep crude prices fairly stable, around $80 per barrel for Brent from the North Sea like American WTI, without managing to get them off the ground.
If OPEC persists and maintains its demand forecasts for 2024, report after report, the International Energy Agency (IEA) is less optimistic and has revised its estimates downwards.
“Inflationary context, gloomy economic outlook and central bank uncertainties”, the environment is “difficult”, comments Ipek Ozkardeskaya, market analyst at Swissquote Bank, also mentioning the strong competition from American oil and tensions in the Middle East.
emb/anb/nth
