The Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to extend their voluntary production cut of 2.2 million barrels of crude oil per day into 2025. This extension builds upon previously agreed reductions of 3.66 million barrels per day announced in 2022 and 2023, as the group led by Saudi Arabia and Russia sought to counter slowing demand and rising output from the United States.
Production quotas
The cuts, first instituted in December, were set to expire at the end of this month. OPEC+ also released its 2025 production requirements for member and non-member countries, which remained largely unchanged from this year’s levels, with the exception of a 300,000 barrels per day increase for the United Arab Emirates, to be phased in gradually from January through September 2025.
Read more: Oil demand to increase by 2.25 million barrels a day in 2024: OPEC+
Falling oil prices
Despite these OPEC+ cuts, equivalent to around 5.7 percent of global crude supply, and ongoing geopolitical tensions in the Middle East, global oil prices have fallen by approximately 10 percent since reaching a five-month high in early April. Brent crude, the global benchmark, traded at $82 per barrel on Friday, down from $91 in early April when a suspected Israeli airstrike on Iran’s embassy in Syria caused jitters in oil markets. Similarly, West Texas Intermediate crude, the U.S. benchmark, has dropped from nearly $87 per barrel to $78.
Factors impacting prices
The subdued prices have been partly attributed to record U.S. oil output, which has increased global supply, as well as concerns over sluggish demand in China, the world’s largest oil importer, and other major economies. In its most recent report, the International Energy Agency cut its forecast for global oil demand growth this year by 140,000 barrels per day to 1.1 million barrels per day, citing weak demand in developed economies, particularly in Europe.
Potential supply crunch
Despite the weaker growth outlook, the IEA has warned that a supply crunch could develop, as it expects global supply to increase by just 580,000 barrels per day this year. The agency had previously stated that it anticipated a supply deficit in 2024 if OPEC+ extended its output cuts through the rest of the year.
The OPEC+ decision coincides with Saudi Arabia’s ongoing efforts to sell a small portion of its state-owned oil company, Aramco, as part of the Kingdom’s economic diversification projects. The government is selling less than 1 percent of the Riyadh-listed company in a deal that could raise $13 billion.
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