Saudi Energy Minister Prince Abdulaziz bin Salman Al Saud arrives for a meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, June 3, 2023.
Joe Kramar | AFP | Getty Images
The influential Organization of the Petroleum Exporting Countries (OPEC) and its allies OPEC+ held on to their planned oil production cuts for this year on Sunday as alliance chief Saudi Arabia announced further voluntary output cuts.
OPEC+ also announced in a statement that it will limit total oil production to 40.463 million barrels per day for the period January-December 2024.
The alliance previously agreed to cut production by 2 million barrels per day in October. Some OPEC+ members also announced voluntary production cuts of 1.6 million barrels per day in April. All voluntary production cuts, initially set to expire after 2023, will now be extended until the end of 2024, Russian Deputy Prime Minister Alexander Novak said on Sunday, Reuters reported.
Riyadh will implement an additional voluntary production cut of 1 million bpd for a month starting in July this year, which can be extended, Saudi Arabia’s Energy Ministry said. That would bring the country’s total voluntary production cuts to 1.5 million barrels per day over the period, keeping output capped at 9 million barrels.
The 23-nation coalition’s move follows contentious talks that dragged into the night on Saturday and a more than four-hour meeting of the coalition’s joint ministerial oversight committee on Sunday , which recommends but does not enforce policy.
OPEC+ faces a struggle to reconcile the outlook for tight supply in the second half of the year, ongoing macroeconomic and inflation concerns, and inter-group diplomacy.
Ahead of the meeting, Saudi Oil Minister Prince Abdulaziz bin Salman warned oil market speculators to be “cautious” in late May, comments that were widely interpreted as heralding another production cut.
It remains to be seen whether production cuts in 2024 will provide long-term support for current oil futures prices when markets open on Monday, after months of pressure from global financial turmoil since the start of the year.
Brent futures Last closed at $76.13 a barrel on Friday, several OPEC+ delegates pointed to a widening gap between prices and supply and demand fundamentals.
back to base
The coalition of oil producers also agreed to review the 2025 baseline – the level at which producers cut output during the OPEC+ deal, usually by a similar amount – after oil analysts IHS, Wood Mackenzie and Rystad Energy have studied each country’s production capacity.
A higher baseline translates into a higher output ceiling. Crucially, baselines are often reused in new iterations of the OPEC+ agreement, and their review and subsequent adjustments are often contentious, meaning they can bind producers over the long term.
OPEC heavyweight UAE has long pushed for an upward revision to its baseline, and won some such concessions in July 2021.
Meanwhile, other producers in the alliance, such as Angola and Nigeria, have long failed to raise production to their designated OPEC+ quotas due to damage, depleted capacity and underinvestment — but have not previously formally offered to do so. Potential changes to its benchmarks to reflect those realities, because of the sensitivity of those discussions, representatives told CNBC.