Source: Finance Association

After holding the latest meeting, the OPEC+ organization has agreed to extend collective production reduction measures until 2025, and also extended the agreement to reduce production of some resources until September of this year.

Delegates said that these restrictions are intended to boost oil prices and avoid global oversupply caused by factors such as increased production in other non-member producers (especially US shale oil producers) and lower demand in the context of high interest rates and high inflation.

The conference, which is scheduled to be held on June 2, was initially planned to be held at the Vienna headquarters, then changed to a video format. It was confirmed earlier this Friday that it will be held in the Saudi capital Riyadh. The constantly adjusted plan added a great deal of attention to this conference.

Extend production reduction measures

OPEC+ member countries are currently cutting production by 5.86 million barrels per day, accounting for about 5.7% of global demand. Among them, 3.66 million barrels per day is the official standard for reducing production, known as collective production cuts, which are scheduled to expire at the end of June this year; in addition, voluntary production reduction measures proposed by various member states include 2.2 million barrels per day.

These voluntary production reduction member countries include Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the United Arab Emirates.

On Sunday, OPEC+ said in a statement that the organization has agreed to extend member states' “collective production reduction measures” until the end of 2025. The results of the meeting mean that the production reduction agreement will continue for another year and a half.

Meanwhile, the “voluntary production reduction measures” previously announced by Saudi Arabia and other member states will also be extended to the third quarter of 2024, including a daily production cut of 1 million barrels implemented by Saudi Arabia for the first time in July last year.

The Saudi Ministry of Energy issued a statement on Sunday saying that the agreement to voluntarily cut production by 2.2 million b/d will be extended until September, then gradually cancelled until September 2025.

Before the conference officially began, market traders and analysts generally expected OPEC to extend the production reduction agreement. Analysts say the 22 OPEC+ countries may choose to respond cautiously in the face of geopolitical uncertainty.

It is reported that OPEC+ will hold its next meeting on December 1, 2024.

Fluctuating oil prices

In April of this year, as the conflict in the Middle East threatened the region's exports, the price of crude oil once soared to a high level of more than 90 US dollars per barrel, but has been falling since then. On May 31, Brent crude oil futures closed at $81.62 a barrel, with a cumulative decrease of 7.1% over the previous month.

Furthermore, the premium for spot Brent crude oil futures contracts has been shrinking, indicating that the global market is shifting from shortage to excess.

According to data released by the International Energy Agency, OPEC+ will need to continue to cut production before it is possible that there will be a shortage of global crude oil supply in the second half of the year. If the group lifts restrictions and resumes production, there will be a new oversupply.

The fall in oil prices threatened the income of oil producers such as Saudi Arabia. However, in order to ensure tighter supply, the organization may need to ensure that member states fully implement their promises to cut production, which has caused differences within the organization.

Although some countries, such as Saudi Arabia, Kuwait, and Algeria, quickly fulfilled the agreed share, other countries such as Iraq, Kazakhstan, and Russia have been slow to fulfill them and continue to exceed the specified quota by hundreds of thousands of barrels per day.

It is worth mentioning that on the occasion of the OPEC+ meeting, the Saudi government completed a $12 billion share sale to state-owned oil giant Saudi Aramco to raise funds for the country's transformation plans. However, according to International Monetary Fund (IMF) estimates, Saudi Crown Prince Mohammed bin Salman's ambitious economic transformation plans can be funded only when oil prices are close to $100 per barrel.

edit/lambor