OPEC+ Extends Oil Production Cuts for Three More Months in Effort to Boost Prices
In a bid to bolster oil prices that have remained stagnant despite ongoing geopolitical tensions, OPEC+ members, led by Saudi Arabia and Russia, have decided to extend the latest round of voluntary cuts to oil production for an additional three months. The curbs, which were initially set to expire at the end of March, will now be maintained until the end of June, as announced by Saudi Arabia’s state news agency.
These measures come as part of a series of output cuts implemented by OPEC+ members since 2022, aimed at supporting prices amidst rising US production and lackluster global demand. Since the implementation of the latest voluntary cuts in January, member countries have collectively reduced their production targets by approximately 2.2 million barrels per day.
While the extension of the production cuts was largely anticipated by traders, crude oil prices experienced a surge last week in anticipation of the announcement. Brent crude, the international benchmark, rose by over 2 percent to close above $83 a barrel on Friday, while WTI, the US equivalent, closed just under $80 a barrel, marking an increase of over 4 percent.
Amrita Sen, an analyst at Energy Aspects, noted that OPEC+ is striving to maintain market stability. Despite recent tensions in the Middle East, including the Israel-Hamas conflict and attacks on commercial shipping by the Houthis, oil prices remain well below the $100 per barrel mark last seen in the summer of 2022. Sen emphasized that while oil prices have become more stable, OPEC+ aims to ensure this stability persists.
Saudi Arabia has taken on the bulk of the production cuts, reducing its output by 1 million barrels per day since July. Overall, the kingdom is currently producing 2 million barrels per day less than it did in October 2022. In a significant policy reversal, Saudi Arabia abandoned its plans to expand its daily oil production capacity by 2027. This decision was driven by the need to fund Crown Prince Mohammed bin Salman’s ambitious economic reform program. However, the US has expressed concerns about the impact of production cuts on inflation.
Other OPEC+ members, including Kuwait, Algeria, Oman, Iraq, and the United Arab Emirates, have also confirmed their commitment to maintaining the voluntary production cuts.
Attention now turns to the semi-annual meeting of OPEC+ ministers scheduled for June 1, where analysts anticipate discussions on the production policy for the second half of the year. While member nations are hopeful of adding barrels back to the market during this period, it is contingent upon market conditions. Amrita Sen emphasized that OPEC+ will not reintroduce barrels to create a surplus in the market.
The outlook for oil demand in 2023 remains uncertain. The International Energy Agency (IEA) predicts a growth in oil demand of 1.2 million barrels per day, roughly half the pace of 2022. On the other hand, OPEC forecasts a higher demand growth rate of 2.2 million barrels per day.
As the world continues to grapple with the effects of the ongoing pandemic and geopolitical tensions persist, the future trajectory of oil prices and global demand remains uncertain. The decisions made by OPEC+ in the coming months will undoubtedly play a crucial role in shaping the oil market and its impact on the global economy.
