OPEC+ Extends Oil Cuts: Effects on Prices and Supply Chains
Several OPEC+ members, including Saudi Arabia and Russia, agreed on Thursday to extend oil output restrictions for three months until March in order to avert a severe collapse in prices in a glutted global petroleum market.
The decision was generally predicted, but disagreements that led the meeting to be postponed by a few days raised concerns that the oil cartel might maintain the cuts.
Following a virtual conference, eight OPEC+ members announced that their “voluntary adjustments” of 2.2 million barrels per day will be extended until the end of March.
Following then, the reduction “will be gradually phased out” on a monthly basis until the end of September 2026, the group stated, adding that this is “subject to market conditions”.
Without a new deal, the eight countries planned to increase output in January, gradually returning it to 2023 levels.
Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the United Arab Emirates have already pushed back production increases scheduled to begin in October and December.
– ‘Buys Some Time’ – US President-elect Donald Trump is projected to increase oil output, while China’s economy is struggling, resulting in a muted impact from supply curbs.
According to David Oxley, chief climate and commodities economist at Capital Economics, Thursday’s move “buys the group some time”.
“The backdrop of weak global oil demand means that it could easily find itself back in a similar position in three months’ time,” according to Oxley.
“In our view, the fundamentals for oil prices remain weak.”
The International Energy Agency predicted last month that even if the OPEC+ cuts are maintained, global production will surpass demand by more than one million barrels per day next year.
OPEC+ countries are currently holding back six million barrels of oil per day, including the 2.2 million barrels per day of supply that they had discussed reintroducing into the market.
The cartel resolved on Thursday to extend two more tranches of cutbacks by one year, till the end of 2026, the organization said.
Analysts at DNB bank said before the meeting that “there is no room for additional OPEC+ oil in 2025” on the market and a boost in output would push down crude prices.
That would displease Saudi Arabia, which relies on high oil prices to fund efforts to diversify its economy.
While Saudi Arabia and Russia hold sway in OPEC+, other countries would like to increase production, in particular Kazakhstan and the UAE, and “have a lot of spare capacity”, according to Rystad Energy analyst Jorge Leon.
Production quotas are only effective if they are followed, and earlier this year the cartel chastised Iraq and Kazakhstan for surpassing their targets.
In June, the UAE received an additional quota of 300,000 barrels per day in 2025, creating tensions with neighboring countries looking to increase output.
AFP
