OPEC+ to continue oil production cuts in second quarter of 2024

The Organization of the Petroleum Exporting Countries (OPEC), in its expanded OPEC+ format, plans to extend oil production cuts into the second quarter of 2024. The measure, introduced in July last year, amounts to a total reduction of approximately 2.2 million barrels per day. The main proponent and “cutter” is Saudi Arabia, the de facto leader of the organization, followed by several key partners. 

Saudi Arabia’s Ministry of Energy announced the extension on Sunday. The country, which dominates production within the organization, is turning down the proverbial oil tap the most. In practice, this means a reduction of 1 million barrels per day, bringing output to approximately 9 million barrels per day.

Iraq and the United Arab Emirates have also backed the proposal within the organization. Iraq is voluntarily reducing its production by 220,000 barrels per day, while the UAE is expected to cut output by 163,000 barrels per day. Kuwait and Algeria are also contributing, with cuts of 135,000 and 51,000 barrels per day, respectively.

Within OPEC+’s expanded remit, Russia is the most prominent partner and has also committed to extending its cuts through the end of June 2024. Deputy Prime Minister Alexander Novak said in a statement that Russia would reduce production and exports by an average of 471,000 barrels per day under its voluntary commitment, the second-largest cut after Saudi Arabia’s.

This policy signals several things. First, it shows strong internal unity, which has not been significantly undermined by Angola’s recent departure. Second, it is a clear signal that the group intends to defend a threshold of over USD 80 per barrel. Third, the policy suggests a pessimistic outlook for demand in the second quarter of this year.

Global developments are also having a significant effect on prices. This year, oil prices have ranged between USD 75 and USD 85 despite events in the Red Sea and risks associated with the Israeli-Palestinian conflict. Seasonal maintenance at refineries in China, the world’s largest oil importer, is also approaching and, as usual, will imply lower demand.

In conclusion, a political meeting of the organization’s leaders is expected to take place in June. It will assess the group members’ baseline production capacities and outline the next steps depending on circumstances. The reduced volumes are expected to be gradually restored in order to support market stability in line with market conditions.