Saudi Arabia, Russia and other Opec+ countries have extended their voluntary cuts in oil production by another three months. They are trying to increase prices which have been subdued despite geopolitical tensions.
According to Saudi Arabia’s state news agency, the curbs are expected to expire by the end March. However, they will continue to be enforced until the end June.
These measures are part of a series by Opec+ member countries to reduce output since 2022 in order to maintain prices amid increasing US production and weak global demand. Since the most recent voluntary cuts took effect in January, they have reduced the combined production target of members by approximately 2.2mn barges a day.
The decision sent a message of unity and confirmed that the group was not in a rush to return the supply volume, confirming the view that this will happen gradually, said Giacomo Romeo. An analyst at Jefferies.
Since the first announcement of the latest cuts at the end November, Brent crude has increased by 6 percent and WTI, its US equivalent, is up almost 8 percent.
The oil price is still well below $100 per barrel, despite the tensions in the Middle East. This includes the Israel – Hamas war, and the Houthis’ attacks on commercial ships.
Crude oil prices rose last week, indicating that traders were expecting the decision to extend curbs. Brent closed above $83 per barrel on Friday after a 2 percent increase, while WTI was just below $80 per barrel.
Amrita Sen, from Energy Aspects, said that Opec+ “tried to keep the markets in balance”. “Oil prices have become much more stable. . . But they want to make sure that the stability continues,” said she.
Saudi Arabia is the main culprit, as it has reduced its production by 1mn B/d every day since July. The kingdom produces 2mn b/d less than in October 2022. In January, reneged on plans to increase its daily oil production by 2027. This was a significant policy change.
The US is concerned about the impact of the country’s efforts to reduce production on the inflation rate.
Kuwait, Algeria Kazakhstan Oman Iraq and the United Arab Emirates have also confirmed they will maintain their voluntary production cuts.
Analysts expect that the Opec+ Ministers will agree on a production policy for the second part of the year at their semi-annual meeting on June 1.
Sen stated that the member nations “hoped to add barrels to the market in the second half” of this year. “But this is not a guaranteed. The market will determine the price. “They will never add barrels back to the market in order to create an excess,” she said.
The outlook for the oil demand in this year is still unclear. The IEA expects oil demand to grow by 1.2mn b/d in 2019, about half of the rate seen in 2023. Opec, on the other hand, believes that demand growth will be even higher, at 2.2mn b/d.