OPEC+ extends oil production cuts into 2025 to stabilise prices

Saudi Arabia still commands the largest supply in OPEC+

Brent crude oil prices have recently hovered around $80 per barrel, a level below what many OPEC+ members require to balance their budgets. Slow demand growth in China, the world's largest oil importer, and rising oil stocks in developed economies have further fuelled the price decline.

OPEC+ has implemented a series of deep output cuts since late 2022, with members currently cutting a total of 5.86 million barrels per day (bpd), equivalent to 5.7% of global demand.

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The cuts include 3.66 million bpd that were due to expire at the end of 2024 and voluntary cuts of 2.2 million bpd by eight members, which were set to end this month.

OPEC+ instead decided to extend the 3.66 million bpd cuts by a year until the end of 2025 and prolong the 2.2 million bpd cuts by three months until the end of September 2024.

The group plans to gradually phase out the 2.2 million bpd cuts over the course of a year from October 2024 to September 2025.

Economic growth

Saudi Energy Minister Prince Abdulaziz bin Salman highlighted the need for interest rates to decrease and for a more favourable economic growth trajectory before easing the cuts.

Despite the OPEC+ cuts and geopolitical tensions in the Middle East, global oil prices have fallen by around 10% since reaching a five-month high in early April.

Brent crude traded at $82 a barrel to close out May, down from $91 in early April, while West Texas Intermediate crude dropped from nearly $87 per barrel to $78.

The subdued prices are partly due to increasing US oil output – the country has upped its global supply – and concerns about sluggish demand in China and other major economies.

The International Energy Agency (IEA) recently revised its forecast for global oil demand growth this year downwards, citing weak demand in developed economies, particularly in Europe. However, the IEA also anticipates a potential supply crunch, with global supply expected to increase by only 580,000 barrels per day this year.

The agency previously warned of a supply deficit in 2024 if OPEC+ extended its output cuts.

Aramco share sale

OPEC+ decisions to extend the cuts coincides with Saudi Arabia's sale of shares in its oil company Aramco, a deal that could generate $13bn for economic diversification projects.

In addition to extending existing cuts, OPEC+ agreed to maintain its formal crude production targets until the end of next year, including a 2 million bpd cut to official output quotas agreed in October 2022.

The group also extended two sets of voluntary cuts by some members. The first, totalling 1.66 million bpd, will now be in place until the end of 2025, while the second, amounting to 2.2 million bpd, will be prolonged until September 2024 before being phased out over 12 months.

These latest agreements are designed to provide the group with flexibility in the face of uncertainties surrounding supply-demand balances and could add upward pressure to South Africa’s fuel price.