OPEC+ members, spearheaded by Saudi Arabia and Russia, have reached an agreement to prolong voluntary oil output cuts of 2.2 million barrels per day (bpd) into the second quarter. This decision aims to provide additional support to the market amidst apprehensions regarding global growth and escalating output from sources outside the group.
Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC), has declared its intention to extend its voluntary reduction of 1 million bpd until the end of June, maintaining its output at approximately 9 million bpd.
Meanwhile, Russia, leading the OPEC allies forming OPEC+, will further reduce oil production and exports by an additional 471,000 bpd in the second quarter. Russian Deputy Prime Minister Alexander Novak disclosed updated figures indicating that production cuts will constitute a growing share of the overall measure.
In 2024, geopolitical tensions and Houthi assaults on Red Sea shipping have provided some support to oil prices, despite concerns surrounding economic growth. Although the maintenance of the cuts by OPEC+ was largely anticipated, Russia’s unexpected announcement could potentially bolster prices even further.
Giovanni Staunovo, an analyst at UBS, remarked on the surprise move by Russia, noting that if the announced cuts are fully implemented, additional barrels would be withdrawn from the market, potentially leading to a price surge.
Brent crude settled at $83.55 a barrel on Friday, marking a $1.64 increase, or 2%, and registering an over 8% rise since the beginning of the year.
Individually announced by OPEC+ members on Sunday, the total cut of 2.2 million bpd was later confirmed by OPEC in a statement. According to the Saudi state news agency SPA, the reversal of the cuts will be gradual, contingent upon market conditions.
Analysts at investment bank Jefferies characterized the decision as indicative of cohesion within the group and suggested that any eventual increase in supply would be gradual.
Moving into the second quarter, Iraq, the UAE, Kuwait, Algeria, and Oman have all pledged to maintain their output cuts, with Kazakhstan extending its voluntary cuts as well.
Since late 2022, OPEC+ has implemented a series of output reductions in response to escalating output from non-member producers, notably the United States, and concerns over demand amidst major economies contending with high interest rates.
Reuters calculations indicate that the total OPEC+ pledged cuts since 2022 amount to approximately 5.86 million bpd, equivalent to around 5.7% of daily global demand.
While OPEC forecasts another year of relatively robust demand growth led by Asia, the International Energy Agency (IEA) anticipates significantly slower growth. Additionally, the IEA expects oil supply to reach a record high of about 103.8 million bpd this year, predominantly driven by producers outside OPEC+, including the United States, Brazil, and Guyana.
