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Opec+ members have agreed to extend deep cuts in oil production, in some cases to the end of 2025, as they battle to shore up prices amid weak global demand and increased supply from other parts of the world.
At its latest biannual meeting on Sunday, the cartel conceded that it had no room yet to change stance on output cuts that began in November 2022, pledging to keep more than 3mn barrels a day of crude off the market until the end of next year.
The group will only bring back a small proportion of its curbed production this year, after eight members, including Saudi Arabia, Russia, Iraq and the United Arab Emirates, agreed to begin unwinding some “voluntary” cuts from October.
Even this move could be halted and reversed at any time if market conditions soured, warned Prince Abdulaziz bin Salman, the Saudi oil minister, in a briefing after the announcement. He added that while Opec+, a wider group that includes Russia and Kazakhstan, wanted to increase production, this would depend on an improved trajectory for the global economy and moves by central banks to start cutting interest rates.
With an uncertain outlook on demand for oil from China and surging oil production from countries outside the Opec+ alliance, notably the US and Canada, member countries went further than expected to reassure the market that they would continue to show discipline over production.
Opec+ members “know that demand worries continue”, said Amrita Sen, founder of research agency Energy Aspects. “They want to continue to provide stability.”
While the Opec+ meeting was held virtually, eight key members, including Russia, Iraq and the UAE, gathered in Riyadh for in-person talks ahead of the event.
Sen also said that it was striking that Opec+ had postponed potentially fractious negotiations about future production quotas until the end of next year. “They know this is not the right time to have that conversation,” she added.
Prince Abdulaziz suggested that the process of accurately assessing the capacity of Opec+ members had been delayed because Russia had not been able to share detailed data with the independent consultancies appointed to carry out the work.
On Friday, benchmark Brent crude traded at $80 a barrel, down from more than $90 in April as tensions spiked in the Middle East.
The complicated actions announced on Sunday highlight the challenge that the producer group faces as it seeks to prop up prices while maintaining harmony among members, some of whom are bristling to restart curbed production.
Opec+ members are implementing three sets of supply cuts introduced since November 2022.
The first set, a group-wide cut of 2mn b/d set to expire at the end of the year, was extended for 12 months by prolonging members’ baseline production quotas for another year. However, the group exempted the UAE, which will be permitted to gradually increase its 2025 baseline output by 300,000 b/d.
A set of voluntary production cuts by nine members, including Saudi Arabia, Russia and the UAE, totalling 1.66mn b/d and due to expire in December, has also been extended until the end of 2025.
A third set of voluntary cuts introduced in January and set to end this month, representing 2.2mn b/d, will be prolonged until September and then gradually unwound over the following 12 months, Saudi Arabia’s energy ministry said in a separate statement. The ministry added that it could reverse the plan if market dynamics changed.
The three sets mean Opec+ members are currently producing almost 6mn b/d less than their combined capacity, representing about 6 per cent of global supply.
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