Global Courant
Saudi Energy Minister Prince Abdulaziz bin Salman al-Saud arrives for the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna on June 3, 2023.
Joe Klamar | Afp | Getty Images
The influential Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, made no changes to planned oil production cuts for this year on Sunday as coalition chair Saudi Arabia announced further voluntary cuts.
OPEC+ also announced in a statement that it will limit combined oil production to 40.463 million barrels per day in January-December 2024.
The alliance previously agreed to a drop of 2 million barrels per day in October. Some OPEC+ members also announced some voluntary declines from just over 1.6 million barrels per day in April. Russian Deputy Prime Minister Alexander Novak said on Sunday that all voluntary cuts, which were initially set to expire after 2023, will now be extended until the end of 2024, Reuters reported.
Saudi Arabia’s energy ministry said Riyadh will implement an additional voluntary cut of 1 million barrels per day for a month from July, which can be extended. This will bring the kingdom’s total voluntary offtake over the period to 1.5 million barrels per day, limiting production to 9 million barrels.
The move of the 23-nation alliance follows controversial talks that dragged into the night on Saturday, as well as a more than four-hour Sunday meeting of the alliance’s Joint Ministerial Monitoring Committee, which recommends policies but does not implement them.
At stake for OPEC+ is a battle to reconcile the prospects of tighter supply in the second half of the year, current macroeconomic and inflation concerns and inter-group diplomacy.
Ahead of the meeting, Saudi oil minister Prince Abdulaziz bin Salman in late May warned oil market speculators to “watch out,” in a comment widely read as an announcement of a resupply.
It remains to be seen whether the 2024 production cut will provide sustained support to current oil futures prices when markets open Monday, following months of pressure from the global financial turmoil since the start of the year.
Brent futures most recently settled at $76.13 a barrel on Friday, with several OPEC+ delegates noting the deepening gap between prices and fundamental supply and demand.
Back to basic
The producer alliance also agreed to revise baselines — the starting level from which producers cut production under OPEC+ agreements, usually by a similar percentage — for 2025, following a survey of countries’ production capacity by oil analysts IHS, Wood Mackenzie and Rystad Energy.
A higher baseline translates into a higher output ceiling. Critically, baselines are often reused in new iterations of OPEC+ agreements and their revision and subsequent adjustment are often contentious, meaning they can tie producers in the longer term.
OPEC heavyweight UAE has long fought for an upward revision of its baseline and received part of such a concession in July 2021.
Other alliance producers, such as Angola and Nigeria, meanwhile, have long since failed to bring production up to their allocated OPEC+ quotas amid sabotage, capacity exhaustion and underinvestment – but potential changes to their baselines to address this reality were not previously formally discussed because of the sensitivity of these discussions, delegates told CNBC.
