Due to a poor demand, the Organization of the Petroleum Exporting Countries (OPEC) and its allies extended the voluntary crude production cuts of 2,2 million barrels per a day until the end of the month.
Videoconference was used to hold a meeting at the ministerial level with allies.
In an official statement, OPEC also stated that it would extend the overall production reductions other than voluntary reductions of 2.2 millions barrels per days until December 31, 2026.
Eight members including Saudi Arabia, Russia and others, had agreed to voluntary reductions of 2.2 millions barrels. These cuts were due to end on the 31st of December this year.
Since June when the original expiry date was set, these reductions have been extended by the cartel.
West Texas Intermediate crude was trading at $68.30 a barrel as of the writing of this article, a 0.3% decrease from its previous closing price. Brent crude oil was 0.2% lower at $72.14 a barrel.
Steep production cuts
Since 2022, OPEC has been reducing the crude oil supply by around 5,86 million barrels a day. It is about 5.7% global oil production.
The total production reductions include 2,500,000 barrels of oil per day from the OPEC+ group as a whole and 1,65,000,000 barrels of oil per day from eight members. Since the beginning of 2024, the eight same members have also been cutting 2.2 millions barrels per day.
OPEC stated in a release that the gradual winding down of voluntary production cuts of 2.2 millions barrels per daily will start from April, and run until September 2026.
First two reductions of 2,000,000 barrels a day and 1,65,000,000 barrels a day have been extended for an additional year until the end of 2026.
OPEC had originally planned to increase output by 18 million barrels a day, by unwinding some of the 2.2 millions barrels a day reductions in December.
The cartel also said that the United Arab Emirates production quota has been raised by 300,000 barils per day. UAE has increased its production capability and is set to boost output starting in 2025.
Production increases for UAE will gradually be phased-in from April of next year until September 2026.
Concerns about oversupply
The market was largely expecting OPEC+ to make a decision on Thursday.
Commerzbank AG analysts had said earlier that the cartel could extend its production cuts for three more months until the end of the month as concerns about oversupply weighed heavily on the oil price.
Despite OPEC’s drastic production reductions, oil prices struggled for much of this year to move out of a tight range. Brent crude oil has remained in the narrow range of $70-$80 throughout 2024.
The majority of countries in the OPEC+ bloc want the oil price to be above $80 per barrel, as this is their break-even point.
Concerns about a 2025 glut have increased due to a poor demand, especially from the top importer, China.
Even without OPEC’s production increase, the International Energy Agency still expects that the crude oil market will be flooded in 2025.
The IEA stated earlier that the supply of non-OPEC nations, including the US, will likely increase by 1,5 million barrels a day in 2019. The IEA expects global oil demand to fall below one million barrels per a day in the next year.
The focus now will shift towards the policies of Donald Trump, US president-elect for oil and gas.
Trump has been very vocal in his support of boosting the oil and gas industry in the US. He is likely to also rollback several US climate regulations.
This article OPEC delays output increase until March, and extends total cuts to 2026 was first published on The ICD
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