The Organization of the Petroleum Exporting Countries and allies on Sunday agreed to extend the voluntary production cut of oil by another month till the end of December.
Eight members of OPEC+, Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman, were the countries adhering to 2.2 million barrels per day of voluntary oil production cut since 2023.
Among these countries, Saudi Arabia, the de-facto leader of the group, has been voluntarily cutting production by 1 million barrels per day of crude oil since last year.
OPEC+ said the eight members will continue to achieve full conformity with the Declaration of Cooperation, including the additional voluntary production adjustments, according to an official statement on Sunday.
The cartel said members will have to fully compensate for the overproduced volumes of crude oil since January this year by September 2025, according to the statement.
OPEC’s decision comes amid weak oil prices
The cartel was supposed to unwind some of their voluntary production cuts from December. It was scheduled to raise output by 180,000 barrels per day from December.
However, oil prices have been volatile over the course of the last one month with prices falling sharply after risks to supply from the Middle East subsided.
Brent crude oil on the Intercontinental Exchange fell to a one-month low of $70.72 per barrel, while West Texas Intermediate plunged below $70 per barrel.
Israel’s limited strike on Iran, where the former only targeted military facilities, reduced the risk premium on oil prices, which had been built up in anticipation of supply being hit from the region.
This prompted OPEC+ to change course and extend the voluntary production cuts by another month.
Warren Patterson, head of commodities strategy at ING Group, said in a note
While the delay until January does not change fundamentals significantly, it does potentially leave the market having to rethink the strategy of OPEC+.
Market share conundrum
Media reports had previously claimed that Saudi Arabia would be willing to increase production and regain market share at the expense of lower oil prices.
In October, several reports claimed that the Kingdom was willing to abandon its $100 per barrel target for oil prices.
However, the latest OPEC+ decision suggests otherwise.
Patterson noted:
This delayed supply increase means that maybe the group is more willing to support prices than many believe.
Moreover, experts believe that the oil market is headed for an oversupply in the coming months.
Oversupply concerns
The International Energy Agency (IEA) had previously said that the oil market will be in surplus going into 2025 as demand remains weak.
Demand growth for oil is likely to be below 1 million barrels per day next year, while supply is likely to rise sharply from non-OPEC producers, the IEA said.
In such a scenario, reversing the voluntary production cuts could add more barrels to an already well-supplied market.
“Our balance continues to show that the market will be in surplus through 2025 unless OPEC+ continues with cuts through next year,” ING’s Patterson said.
At the time of writing, the price of WTI crude oil on the New York Mercantile Exchange was at $70.67 per barrel, up 1.7%, while that of Brent was 1.6% higher at $74.25 per barrel.
Prices have risen after OPEC+ announced on Sunday it will extend the production cuts by another month.
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