Oil Prices Boost, OPEC+ Agrees to Extend Production Cuts


The OPEC+ group of oil-producing countries agreed Sunday (2/6) to extend its production cuts to support prices, as economic and geopolitical uncertainty looms over the market.

The 12-nation oil cartel and its 10 allies decided to “extend overall crude oil production levels… from January 1, 2025 to December 31, 2025,” according to a statement from the alliance.

Additionally, eight countries said they would also extend voluntary supply cuts made at Riyadh’s request to further support the market. The eight countries are Saudi Arabia, Russia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman.

Some of the cuts will last until September before being halted, while others will be maintained until December 2025.

These decisions were taken after the biennial meeting of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and its 10 partners, chaired by Russia.

Supply cuts across this group amount to around two million barrels per day (bpd).

Coupled with voluntary cuts, OPEC+ members are currently cutting output by nearly six million barrels per day overall to prop up sluggish oil prices.

Positive surprise

OPEC+ also agreed to allow the United Arab Emirates to increase its production target by 300,000 bpd for next year, according to a statement.

The UAE has pledged to make additional voluntary production cuts at the request of Saudi Arabia, which wants to share the burden of the cuts in an effort to support prices.

UBS analyst Giovanni Staunovo called Sunday’s announcement a “positive surprise.” The decision “removes some uncertainty over some future tensions, as quotas will now be reviewed at the end of 2025 for 2026,” Staunovo told news agency AFP.

Challenging situation

Negotiations over member countries’ production quotas have in the past repeatedly been a source of contention, sparking heated debates and even surprising departures from the cartel.

At the end of 2023, Angola left OPEC due to disagreements over production cuts. But according to Mukesh Sahdev of research group Rystad Energy, the alliance still faces the problem of “actual barrels flowing into the market are likely higher than calculated”, potentially undermining the cartel’s strategy.

Additionally, Iraq and Kazakhstan exceeded their quotas in the first quarter, while Russia overproduced in April.

A screen shows a broadcast of Russian President Vladimir Putin’s annual state of the nation address, as an employee fills up with fuel at a gas station in Moscow, February 29, 2024.

Amid questions about global demand, some analysts say that gradually allowing oil to return to the market without sending prices tumbling will be a challenge.

Producers may have to devise complex systems to reintroduce previously removed barrels, without causing prices to fall.

Oil prices have not changed much since the last meeting in November, hovering around $80 a barrel.

OPEC continues to stick to its demand forecast for 2024, while the International Energy Agency has lowered its estimate.

Amid “above-average inflation, slowing global growth prospects, central bank uncertainty, rising US oil production and Middle East tensions, the situation is challenging”, said Ipek Ozkardeskaya, a market analyst at Swissquote Bank.

Oil Prices Slump after OPEC+ Extends Production Cuts

Crude oil prices slumped on Monday (6/3) after Saudi Arabia and its allied oil producing countries extended production cuts into next year, a move aimed at propping up oil prices that have not risen, even amid Middle East turmoil and the start of the holidays. summer.

The OPEC+ alliance, which includes the Saudi Arabian-led OPEC oil cartel and its allies, including Russia, extended production cuts in three different sets, totaling 5.8 million barrels per day.

The price of Brent crude oil, which is the world reference, has been in the range of $81-$83 (around Rp. 1.3 million) per barrel over the past month. The Gaza war and attacks by Yemeni Houthi rebels on container ships in the Red Sea have not even pushed oil prices up to $100 (Rp. 1.6 million) per barrel, which last happened in September 2022.

The reasons include higher interest rates, concerns over demand due to slower-than-expected economic growth in Europe and China, and increasing oil supplies from non-OPEC, including from US shale oil producers.

However, Saudi wants higher oil prices to fund Crown Prince Mohammed bin Salman’s ambitious plans to diversify the country’s economy away from fossil fuel exports.

Higher oil prices would also help Russia maintain economic growth and stability, as the country spent heavily on the war against Ukraine.

Analysts think the cuts could push oil prices higher in the coming months, but that really depends on future oil demand. Demand spikes typically occur in summer during the July-September quarter, but demand uncertainty returns thereafter.

US vehicle users benefit from cheaper oil prices. Gasoline prices have been stable recently, averaging $3.56 a gallon last week, a penny lower than a year ago. That price is down from the record high US national average of $5 (Rp. 81 thousand) per gallon in June 2022.

OPEC stated that the production cut reached 2 billion barrels per day. Which was agreed, upon by the 23 OPEC+ members and extended until the end of 2025.

Later, voluntary production cuts of 1.65 million barrels per day. By smaller member groups were also extended until the end of 2025. According to a report by the Saudi Press Agency.

In addition, the previous agreement regarding a voluntary production cut of 2.2 million barrels per day. Which was due to expire at the end of this month. Was extended until next September. But will be reduced gradually every month, until it is eliminated in September 2025.