OPEC+ Weighs Extension of Voluntary Oil Production Cuts

OPEC and its allies, collectively known as OPEC+, are contemplating the extension of voluntary oil production cuts beyond the first quarter of 2024.

In the ever-fluctuating landscape of global oil markets, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are contemplating the extension of voluntary oil production cuts beyond the first quarter of 2024.

Two anonymous OPEC+ sources revealed that a decision on this matter is expected in March, following a recent ministerial panel meeting where no changes were made to the existing output policy.

In November of the previous year, OPEC+ had collectively agreed to voluntary output reductions amounting to approximately 2.2 million barrels per day (bpd) for the initial quarter of 2024.

Notably, Saudi Arabia took the lead by maintaining a 1 million bpd voluntary reduction. As oil prices continue to hover above $81 a barrel for Brent crude, support is derived from anticipated interest rate cuts and escalating geopolitical tensions, particularly the recent attacks by the Iran-aligned Houthi group on Red Sea shipping.

The two undisclosed OPEC+ sources emphasized that the decision on extending the cuts will be thoroughly reviewed in March, with a subsequent announcement following the customary practice observed during the renewal of voluntary cuts within the OPEC+ framework.

Algeria, an OPEC member, expressed readiness on Thursday to continue its voluntary cuts beyond March if deemed necessary. Meanwhile, Kuwait affirmed its commitment to the existing curbs without explicitly stating whether they should be extended. The market is keenly observing these developments as they unfold against the backdrop of a dynamic global energy landscape.

During the recent online meeting, leading ministers from OPEC and its allies, led by Russia, discussed market conditions and oil output levels. The outcome revealed no changes in the existing policy, with a strong indication of unity and commitment among the member countries.

According to an OPEC statement, the Joint Ministerial Monitoring Committee (JMMC), responsible for overseeing compliance, acknowledged the “high conformity” of countries with the output decisions made in November and December. The committee will continue to monitor conformity with decisions made in June 2023, the November 2023 voluntary cuts, and an earlier round of voluntary cuts in April 2023.

If the voluntary cuts implemented for the first quarter are lifted, OPEC+ would reintroduce 2.2 million bpd to the market from the beginning of April. This would leave in place 3.66 million bpd of output cuts previously agreed upon.

Notably, Saudi Arabia has signaled its willingness to continue the cuts beyond the initial quarter if market conditions necessitate such measures.

In a surprising move this week, the Saudi government issued an order for state oil company Aramco to halt its oil capacity expansion plan. Instead, the directive is to target a maximum sustained production capacity of 12 million bpd, which is 1 million bpd below the target announced in 2020.

Russian Deputy Prime Minister Alexander Novak, commenting after participating in the OPEC+ meeting, remarked that the situation in the oil market is currently stable. However, the global energy landscape remains unpredictable, and the decisions made by OPEC+ in the coming months will undoubtedly have a significant impact on oil prices and market dynamics.

The next scheduled meeting of the Joint Ministerial Monitoring Committee (JMMC) is set for April 3, where further discussions and decisions regarding the future of voluntary oil production cuts are expected to unfold. As the world closely watches the developments within OPEC+, the energy market remains at the mercy of geopolitical tensions, economic considerations, and the delicate balance between supply and demand.