OPEC+ announced extensions for most of its oil production cuts at a gathering this past Sunday (June 2) amid struggling oil prices brought on by subdued demand and higher inventories of the fuel.
The decision, reached at a meeting in Riyadh, Saudi Arabia, involves maintaining voluntary cuts of 1.65 million barrels per day (bpd) announced in April 2023 through to December 2025. The cuts were originally set to expire at the end of 2024.
Meanwhile, voluntary cuts of 2.2 million bpd declared in November 2023 will continue until the end of September 2024, after which they will be gradually phased out on a monthly schedule by September 2025.
Oil prices have been volatile in 2024, with Brent crude, a global benchmark, hovering around US$80 per barrel. This price level is below the fiscal breakeven point for many OPEC+ members.
The extensions are expected to address the current oversupply and support prices, which have been pressured by sluggish demand growth, particularly from China, and increasing oil inventories in developed economies.
Oil prices fall after OPEC+ announcement
Oil prices fell on Monday (June 3) following the OPEC+ announcement.
West Texas Intermediate crude for July delivery fell to US$74.27 per barrel on the news, a decrease of 3.5 percent, while Brent crude for August delivery dropped to US$78.54, down 3.2 percent.
Helima Croft, head of global commodity strategy at RBC Capital Markets, noted that some interpreted the OPEC+ statement as bearish given that the phasing out of cuts is subject to market conditions.
“They were pretty clear that this is going to be data dependent. As we get to the end of August, if the fundamental picture looks worse than what we have now, they would pause that addition,” she told CNBC.
If OPEC+ phases out the 2.2 million bpd worth of cuts as currently planned, more than 500,000 bpd will return to the market by December 2024, and 1.8 million bpd will return by June 2025.
The next OPEC+ meeting is scheduled for December 1, 2024.
Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.