Oil prices were up sharply yesterday, in reaction to OPEC+'s decision to extend the voluntary reductions of eight of its members, including Algeria, until the end of the year.
The OPEC Secretariat announced last Sunday that eight OPEC+ countries, Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman, which had previously announced additional voluntary adjustments in April and November 2023, agreed to extend the November 2023 voluntary production adjustments of 2.2 million barrels per day by one month until the end of December 2024.
In addition, the eight countries reiterated, according to an OPEC statement, “their collective commitment to fully comply with the Declaration of Cooperation, including additional voluntary production adjustments, which were agreed to follow by the JMMC during of its 53rd meeting held on April 3, 2024, and to fully compensate by September 2025 for the volumes overproduced since January 2024, in accordance with the compensation plans submitted to the secretariat of OPEC.
The countries also “took note of the recent announcement made by Iraq and the joint statement made by Russia and Kazakhstan, in which they strongly reaffirmed their commitment to the agreement, including the additional voluntary adjustments of production and their compensation schedules for the excess volumes produced since January 2024,” OPEC also underlined in a press release, which gave a positive signal to the market, inducing an immediate gain of more than 2 dollars per barrel, in progress rating.
The eight member countries, affected by the voluntary reduction, have therefore decided to support oil prices, currently very volatile, by postponing the restoration of subtracted production. Brent and WTI recorded weekly declines of around 4% and 3% respectively last week. The supply increase has already been delayed since October due to falling prices.
“While the delay until January does not significantly change fundamentals, it potentially forces the market to rethink OPEC+ strategy,” ING analysts said in a note echoed by Reuters. “This extension of the production reduction goes against the expectations of some market participants, who expected OPEC+ to carry out the planned production increase.
It means the group may be more willing to support prices than many think,” they added. OPEC+ thus extends the reduction of 2.2 million barrels per day until the end of the year, while an additional 3.66 million barrels per day of production reduction will remain in force until the end of 2025. Brent futures were trading yesterday well above $75 per barrel during the day, while American crude, West Texas Intermediate (WTI), increased significantly, settling above $71.
