OPEC+ continues to cut oil production
The plunge in crude oil and fuel prices has prompted the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to extend its production cuts.
In an announcement on September 5, OPEC+ said it would continue to reduce production by 2.2 million barrels of oil per day until the end of November. From December 2024 to November 2025, production will gradually increase.
This information helped increase the price of world crude oil. Currently, each barrel of Brent increased by 0.5% to 73 USD a barrel. WTI oil increased similarly, to 69.5 USD.
OPEC+ has been holding back production for the past two years, aiming to prevent a glut in the market that would cause prices to fall and hurt member countries that rely on oil exports. OPEC+ has previously extended the production cuts several times. Most recently in June, they extended the reduction of 2.2 million barrels a day until September, and reduced it by 1.65 million barrels a day until the end of 2025.
Oil prices have been on a downward trend this year, despite OPEC+ maintaining production cuts and rising geopolitical tensions in the Middle East. The main reason is that demand from China - the world's largest oil importer - is weak. Meanwhile, oil production in the US is at a record high, with 13.4 million barrels a day in August. US WTI crude oil prices are currently at their lowest since December 2023.
Last month, OPEC cut its forecast for global oil demand growth for the first time in a year. The world is now expected to consume 104.3 million barrels of oil a day this year, up 2.11 million from last year but down from the previous month’s forecast of 2.25 million barrels. In June, the International Energy Agency (IEA) predicted that by 2030, world supply could exceed demand by as much as 8 million barrels a day.
OPEC+ continues to tighten oil supply until the end of 2025
OPEC+ still wants to cut production to push up oil prices, amid prices lower than many members need to balance their budgets.
After a meeting on June 2, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed to extend the production cut policy until the end of 2025. Currently, OPEC+ still wants to support oil prices, in the context of weak global demand growth, high interest rates and increased US crude oil production.
The decision was not unexpected by analysts. World oil prices have fallen 10% since hitting a five-month high earlier last month. Brent is now trading at $81 a barrel, below the level many OPEC+ members need to balance their budgets.
Since late 2022, OPEC+ has implemented a series of drastic production cuts. Currently, countries have committed to withdrawing a total of 5.86 million barrels of oil a day from the market, equivalent to 5.7% of global demand.
This reduction includes 2 million barrels a day for all members. 1.66 million barrels a day in the first voluntary reduction with 9 countries. And 2.2 million barrels a day in the second voluntary reduction with 8 members.
Following the June 2 meeting, the 2.2 million barrel cut will be extended through the third quarter of this year. The 3.66 million barrel cut will apply until the end of 2025.
In total, the group will produce 39.725 million barrels of oil a day next year.
Concerns about slowing demand growth in China, the world’s largest oil importer, are weighing on global oil prices. Oil inventories in developed economies are also rising.
In its latest monthly report, the International Energy Agency (IEA) lowered its forecast for oil demand growth this year to 1.1 million barrels a day, down from 1.24 million barrels previously. The main reason is weaker demand in developed economies, especially Europe.
Meanwhile, supply is rising. The IEA forecasts global oil supply to rise by 580,000 barrels a day this year. Just two months ago, it said the world would be short of oil this year if OPEC+ continued to cut production.