Opec+ agreed to extend its oil supply cuts, delegates said, as the group continues its efforts to avoid a global surplus and prop up prices.
So-called “voluntary” cuts from key members including Saudi Arabia and Russia, which amount to about 2 million barrels per day and were due to expire at the end of June, will continue until the end of 2024, the delegates said, asking not to do so. be named because the conversations were private.
Those restrictions came on top of an earlier group-wide agreement that limits crude production until the end of this year. The alliance also agreed to extend that agreement until the end of 2025, according to a statement on Opec's website. The United Arab Emirates, which has invested heavily in new oil projects in recent years, received a 300,000 barrels per day increase in its production target for next year.
Opec+ ministers met on Sunday for a meeting to decide oil policy, with some attending talks in person at Riyadh's Ritz hotel and others participating online. Traders and analysts had widely expected the extension of the group's voluntary cuts, seeing them as necessary to offset rising output from several of Opec+'s rivals. particularly American shale drillers – and a fragile economic outlook in top consumer China. The agreement to extend cuts for the entire group for another 12 months goes a little further than OPEC observers expected.
While crude oil prices briefly spiked above $90 a barrel in April as conflict in the Middle East threatened regional exports, they have since decreased. Brent futures settled at $81.62 a barrel on May 31, a drop of 7.1% on the month.
Lower oil prices have offered some relief to central banks struggling with persistent inflation, but threaten the income of producers like Saudi Arabia. The kingdom needs prices close to $100 a barrel to finance Crown Prince Mohammed bin Salman's ambitious spending plans, the International Monetary Fund estimates. Parallel to the Opec+ meeting, the Saudi government completed a $12 billion share sale of state oil giant Aramco, raising funds to help pay for a massive economic transformation plan.
Oil market indicators have likely made it clear that the Organization of the Petroleum Exporting Countries and its allies must proceed cautiously. The premium on Brent spot contracts, known to traders as “backwardation,” has been declining, suggesting that world markets are moving from shortage to surplus.
Data from the International Energy Agency in Paris indicate that Opec+ needs to persevere with restrictions to generate a global supply deficit in the second half. If the group were to remove restrictions and restore production, a new oversupply would arise.
