Following OPEC+’s decision to gradually lift its production cuts, the price of Brent plunged to its lowest level since February.
The oil market reacted forcefully on Monday after OPEC+’s announcement to end one of its production reduction layers from October. North Sea Brent, Europe’s oil benchmark, fell 3.39%, slipping below the $80 mark to $78.36. Its US equivalent, WTI, also fell 3.59% to $74.22, marking its lowest level since February.
According to Tamas Varga, analyst at PVM Energy, the drop in prices is attributable to the OPEC+ meeting the day before, where “the market was disappointed that the group was gradually relaxing some of its production limitations despite the absence of tangible signs demand improvement”.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies in the OPEC+ alliance extended ongoing production cuts until the end of September, before gradually reintroducing barrels to the market over the following 12 months, starting in October 2024. This meeting, in a hybrid format unprecedented in Riyadh, made it possible to clarify the group’s intentions regarding the end of its supply reduction policy.
Despite maintaining production cuts in the third quarter, Goldman Sachs described the decision as “bearish”, signaling that opening the oil floodgates in October is seen as negative for the market. This decision comes as uncertainty over Chinese demand weighs on global raw materials, underlines Lukman Otunuga, analyst at FXTM.
Currently, OPEC+ members are reducing their production at three levels: first at group level with official quotas reduced by 2 million barrels per day (mbd) since the end of 2022, quotas extended until the end 2025. Then, voluntary reductions by certain members, announced in April 2023, of 1.65 mbd in total, renewed until the end of 2025. Finally, eight members made additional reductions of 2.2 mbd in November 2023, extended until the end of September 2024.
In summary, the three OPEC+ cuts total nearly 6 mbd, extended at least until September. This complex assembly had initially left the raw marble prices. However, the United Arab Emirates obtained on Sunday an increase in its official production quota of 300,000 barrels per day, implemented gradually from January to September 2025.
With the end of additional cuts and the increase in the Emirates’ production target, OPEC+ could reintroduce 2.5 mbd from September 2024 to September 2025. Reintroduce these barrels without flooding the market or plunging prices into the red promises to be a real challenge for the group, especially “if the demand outlook remains negative”, according to Lukman Otunuga.
DNB analysts even predict that the group of exporting countries will have to mourn the loss of a barrel of Brent at more than 80 dollars “if the alliance acts as planned”, seeing “no room for additional barrels from OPEC+ on the market “. The group nevertheless recalled that it could stop or reverse the exit from its production reductions if market conditions deteriorate.
