Commodity Markets: OPEC+ Again Reduces Oil Production

OPEC+ member countries have decided to extend the measure committing to reduce oil production to support price growth, as the market expected, writes Hrvoje Stojić, chief economist of the Croatian Employers’ Association, in this week’s analysis.

OPEC+ has decided to extend the measure to reduce oil production by 2 million barrels per day until the end of 2025, while it was previously agreed that this measure would be in effect until the end of this year. Only the UAE has increased its production target by 300,000 barrels per day by 2025 due to increased production capacity.

Due to the new agreement on production reduction, the oil market will end this year in a raw material deficit, which was also the goal of OPEC+ members, considering that reducing raw materials increases the price in the market to a level that would satisfy them. It is expected that in the third quarter of 2024, the deficit will amount to about 1.5 million barrels of oil per day, while in the fourth quarter, this deficit will amount to about 700,000 barrels of oil per day.

Due to the larger deficit in the summer months, it is expected that prices will rise significantly during that period, as demand is also higher in those months. It is expected that the price of Brent will rise to 88 dollars per barrel during the summer months.

Wheat Prices Will Also Rise

Sovecon, a Russian agricultural consulting firm, has reduced its wheat production forecasts this week from 82.1 million metric tons to 80.7 million metric tons due to expectations of dry and warmer weather, following May’s frosts, which reduce wheat yields. Considering that Russia is the world’s largest wheat exporter, it was expected at the beginning of the year that wheat production would amount to about 94 million tons, which means that the revised forecasts are 12 million metric tons lower.

Additionally, Deputy Prime Minister Patrushev stated that they expect wheat exports to fall to 60 million tons in the 2024/2025 season, down from 70 million tons exported in the previous season, as colder weather in May in certain regions has damaged wheat crops.

The Russian Minister of Agriculture announced that there is a possibility that the country will declare a state of emergency due to the frozen crops from May, which is a step towards farmers receiving state aid in the absence of wheat yields. It is expected that wheat prices will rise above 650 dollars per bushel due to the market deficit.