OPEC+ Members Continue Reduced Production Until June

OPEC+ members led by Saudi Arabia and Russia have extended the latest round of voluntary oil production cuts for another three months as they attempt to raise prices that have remained low despite ongoing geopolitical tensions, reports FT.

The restrictions were set to expire at the end of March but will now remain in place until the end of June, according to the Saudi state news agency. These latest measures are an addition to a series of production cuts by OPEC+ members since 2022 designed to support prices amid rising production in the U.S. and lukewarm global demand. Since the latest voluntary cuts took effect in January, they have reduced the collective production targets of the members by about 2.2 million barrels per day (b/d).

Brent has risen by 6 percent, and WTI by nearly 8 percent since the latest cuts were first announced at the end of November. However, despite tensions in the Middle East, including the war between Israel and Hamas and Houthi attacks on commercial ships in the Red Sea, the price of oil remains significantly below the $100 per barrel level last seen in the summer of 2022.

Expected Measure

Traders largely anticipated the decision to extend the restrictions, given that crude oil prices rose last week ahead of this announcement. Brent crude, the international benchmark, rose by more than 2 percent last week and ‘closed’ on Friday above $83 per barrel, while the U.S. equivalent WTI closed just below $80 per barrel, marking an increase of over 4 percent.

OPEC+ has been trying to keep the market balanced. Although oil prices are much more stable, they want to ensure that stability continues, said Amrita Sen from the statistical firm Energy Aspects.

Saudi Arabia has taken on most of the cuts, reducing its production by 1 million b/d since July. Overall, the Kingdom produces 2 million barrels per day less than in October 2022, and in January, they abandoned major plans to expand their daily capacities. The Saudis want a price around $100 per barrel to finance the ambitious economic reform program of Crown Prince Mohammed bin Salman. However, the U.S. is not happy about the production cuts as they are concerned about how this could affect inflation globally.

Kuwait, Algeria, Oman, Iraq, and the United Arab Emirates have also confirmed that they will maintain voluntary production cuts.

Now, all eyes are on June 1 when OPEC+ will hold its semi-annual June meeting, where analysts expect the group to align on production policy for the second half of the year.

The outlook for oil demand this year remains unclear. The IEA forecasts that oil demand will increase by 1.2 million b/d, about half of that in 2023, while OPEC believes that demand growth will be higher at 2.2 million b/d.