As we near 2025, the recent decision of the Organization of Petroleum Exporting Countries to extend their production cuts until the end of January is adding more uncertainty to the market.
The cartel and their allies extended voluntary production cuts until the end of the month to support crude oil prices.
Eight members of OPEC+ were scheduled to undo some of their voluntary production cuts from December, by adding 180,000 barrels of crude oil per day to the market.
OPEC’s course of action changed again when West Texas Intermediate oil prices dropped below $70 per barrel and Brent reached as low as $70.00.
In June of this year, the group had originally planned to end its voluntary steep production cuts. The cartel extended its cuts until the end of September and then into December.
In a note, ING Group analysts stated that they had been of the opinion that the lack compliance by some members as well as the loss of share of the market would force the group to increase its supply.
It seems, however, that Saudi Arabia and the wider group are more committed than initially thought to support the market.
OPEC+ has announced that it will be rolling back some of the voluntary production cuts made in January.
Recent trends suggest that the cartel could choose to defer its decision once more as the oil markets are heading towards a significant surplus by 2025.
The outlook for 2025 is bearish
The outlook for oil prices in 2025 is still bearish, despite geopolitical risk.
Imports from China, the world’s largest importer, fell in October as concerns about a poor demand continued to affect prices.
According to the International Energy Agency (IEA), global oil demand will only grow by 900,000. barrels per day in 2019.
The Paris-based agency has projected that global demand will grow by only 1 million barrels a day in 2024.
In such a context, any increase in OPEC+’s oil production could bring more barrels unwanted to the market.
According to ING Group, “China is a major driver of the downward revisions in demand in recent month. Cumulative crude oil imports are down about 3% on an annual basis.”
Increased non-OPEC supply
According to the IEA, the supply outside of the OPEC+ coalition is expected to increase in 2025. According to the IEA, the majority of the increase will come from countries like the US, Brazil Guyana, and Canada.
According to the IEA, production growth in these countries will exceed demand growth.
In 2024, the US-led non-OPEC supply continued to grow at a robust rate of about 1.5 million barrels a day. Next year, the growth will increase by another 1.5 million barrels a day.
As of November 1, the Energy Information Administration reported that the US was the world’s biggest crude oil producer, producing 13.5 million barrels of oil per day.
The country’s production is at record highs. With Donald Trump winning the US presidential election in 2024, the supply is expected to rise further.
Trump supports more drilling of oil and gas in federal US land. He will also roll back many climate regulations that were passed during the presidency of Joe Biden.
This could cause OPEC+ to lose market share if it continues with its production cuts until 2025.
Market share is affected by steep production cuts
OPEC+ adheres to steep production reductions for the past couple of years.
The group has cut oil production by 3.6 million barrels a day in addition to the 2.2 millions barrels a day it had already reduced.
The group is currently withholding approximately 5.8 million barrels of oil per day from the market, which is about 6% of the total global supply.
The sharp production cuts within the group have led to a decline in market share for key exporters like Saudi Arabia.
The IEA reported that “OPEC+ spare capacity is at historic highs – barring the exceptional Covid-19 pandemic period”.
Saudi Arabia, de facto leader of cartel, recently stated that it was willing to lose market share in exchange for lower oil prices.
As soon as Brent fell below $70 a barrel, the group decided to extend production cuts for another month.
The market is left in the dark about the next moves of the group.
Prices are below desired levels
Since many of the countries in the cartel rely on oil exports to support their economies, OPEC+ countries would like to see prices above $80 a barrel.
For many Middle East oil producing countries, the $80-per barrel mark is the breaking point.
Carsten Fritsch said that OPEC+ cannot increase production due to the weakening of demand and the rising supply of oil outside OPEC+. This would lead to an oversupply, resulting in a drop in price.
OPEC+ will not have many options in a few months other than to delay the production increase once again.
WTI crude price was $71.79 a barrel at the time this article was written, down by 0.8% compared to the previous close. Brent crude prices are $75.16 a barrel, down by 0.6%.
Brent prices will likely trade at around $72 per barrel in 2025. This is $3 lower than current levels.
This post OPEC production cuts extended: Oil prices to surge? This post may be updated as new information unfolds.
