In a bid to fortify the oil market against concerns surrounding global economic expansion and increasing production from countries outside its membership, the coalition of OPEC and its allies, known as OPEC+, comprising chiefly Saudi Arabia and Russia, have reached an accord to extend voluntary reductions in oil output into the second quarter of this year.
As reported by Reuters, this decision, disclosed on Sunday, involves the continuation of cuts amounting to 2.2 million barrels per day (bpd), with Saudi Arabia and Russia leading the initiative.
Saudi Arabia, acting as the de facto head of OPEC, has pledged to uphold its voluntary reduction of 1 million bpd until the conclusion of June, maintaining its output at approximately 9 million bpd. Simultaneously, Russia, leading the OPEC+ coalition, has declared intentions to decrease oil production and exports by an additional 471,000 bpd in the forthcoming quarter, underscoring an increasing reliance on production cuts to stabilize the market.
“This resolution conveys a sense of unity and affirms that the coalition is not eager to swiftly revert to previous supply levels, bolstering the notion that when such a reversal eventually occurs, it will be gradual,” analysts at investment bank Jefferies conveyed as reported by Reuters.
Russia’s unforeseen decision to further diminish output has captured the attention of market analysts, with UBS analyst Giovanni Staunovo recognizing the potential impact on lifting prices if these reductions are fully implemented.
Despite geopolitical tensions and Houthi assaults on shipping in the Red Sea, the oil market has found support in 2024. However, concerns regarding economic growth persist. Despite widespread expectations of OPEC+ maintaining existing cuts, Russia’s announcement of supplementary reductions has the potential to provide additional support to prices, analysts suggest.
Brent crude concluded at $83.55 per barrel on Friday, reflecting an uptick of $1.64, or 2 percent, and indicating a year-to-date increase of over 8 percent.
Individual members of OPEC+ disclosed their commitments to the extended cuts, with Iraq, UAE, Kuwait, Algeria, and Oman among those affirming their dedication to sustaining reduced output levels throughout the second quarter. Kazakhstan likewise vowed to prolong voluntary cuts through the same timeframe.
The collective endeavors of OPEC+ since late 2022 have resulted in pledged cuts totaling approximately 5.86 million bpd, equivalent to roughly 5.7 percent of daily global demand, according to Reuters’ estimations.
In the midst of uncertainties surrounding the outlook for oil demand in the year, OPEC predicts robust demand growth of 2.25 million bpd, primarily driven by Asia, while the International Energy Agency (IEA) anticipates more moderate growth of 1.22 million bpd. Additionally, the IEA forecasts oil supply to reach a record high of about 103.8 million bpd in 2024, predominantly propelled by producers outside the OPEC+ alliance, including the United States, Brazil, and Guyana.
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