OPEC+ extends oil output cuts into 2025

June 3, 2024
OPEC+ has decided to prolong the 3.66 million b/d production cut (announced in 2022 and 2023) for 1 year and extend the voluntary 2.2 million b/d production cut by eight members for another quarter.

In a series of ministerial meetings held June 2, OPEC+ decided to prolong the 3.66 million b/d production cut (announced in 2022 and 2023) for 1 year until end-2025 and extend the voluntary 2.2 million b/d production cut by eight members for another quarter until end-September 2024.

In addition, OPEC+ decided that production quotas for 2025 will remain unaltered for all participating countries except for the United Arab Emirates (UAE). UAE will receive an extra 300,000 b/d allocation, bringing its total to 3.519 million b/d, with the condition that the country will only incrementally increase its output during the initial 9 months of the year.

Meantime, starting from October 2024, the eight countries voluntarily cutting production (Saudi Arabia, Russia, Iraq, UAE, Kuwait, Algeria, Kazakhstan, and Oman) may gradually begin to increase output on a monthly basis depending on market conditions. It could take up to 12 months to completely reverse the cuts. A proposed monthly increase table outlines the planned increments if feasible. These schedules are subject to adjustments reflecting changing market conditions.

“OPEC+ member countries would like to start increasing oil production without negatively impacting prices. They cannot do that just yet. The need for more OPEC+ oil on a durable basis in the near future is not immediately evident and the group’s ministers reflected that in their latest decisions on supply to markets,” said Bhushan Bahree, executive director, S&P Global Commodity Insights.

The augmentation of quotas for UAE in 2025 temporarily allays concerns surrounding contentious discussions regarding baseline adjustments during a demanding period for OPEC+ participants. OPEC+ has now announced that the issue of new baselines has been put off for a year—it will apply to 2026 allocations and be guided by secondary source assessments toward end-2025.

“An increase in quota does not automatically translate into more supply. UAE, for instance, is participating in additional voluntary cuts at this time. But the adjustment does change the share of the OPEC+ pie, giving UAE a larger slice,” said Paul Tossetti, executive director, S&P Global Commodity Insights.

Regarding the timetable of returning the 2.2 million b/d voluntary cuts to the market after October 2024, “it is a message to markets that these countries are willing to at least stay the course—even if disinclined to cut output further—to support prices by continuing to restrain their output for longer if necessary. At least for a time, anyway," Tossetti continued.

According to Walt Chancellor, an energy strategist at Macquarie, OPEC+’s decisions support near-term balance, but may appear problematic for 2025. The extension of 2.2 million b/d of voluntary cuts through third-quarter 2024 stands to amplify summertime tightness in crude. But the visible roadmap for returning cuts to the market from October 2024, subject to market conditions, represents a stronger indication that extreme levels of market support by OPEC+ (principally Saudi Arabia) may not last forever.

“The broader OPEC+ group agreed to extend a base-level of production quotas through 2025, alongside a 300,000 b/d increase for UAE. While we don't believe this tranche of production curbs is particularly meaningful, its extension provides a measure of symbolic unity, which the market may find somewhat reassuring,” said Chancellor.