OPEC+ members met over the weekend to discuss production policy for the remainder of this year and 2025. It was a hybrid meeting with the wider group attending by video conference, while members making additional voluntary cuts met in person in Riyadh. The meeting coincided with Aramco’s $12bn secondary share offering on Sunday, which sold out within hours.
Heading into the meeting, OPEC+ would have been somewhat concerned about recent price action in the market. ICE Brent is down more than 10% from its April highs despite OPEC+ withholding a significant amount of oil from the market. There are clear signs of weakness in the physical oil market. Refinery margins have moved lower, raising the prospect of a reduction in refinery runs, while the prompt Brent timespread has seen its backwardation narrow significantly, suggesting less concern over near-term tightness in the market.
In addition to some softer fundamentals more recently, expectations were high for members to fully roll over their additional voluntary cuts into the second half of 2024. Recent price action and forecasts for the market to return to surplus without a rollover drove this view.
OPEC+ agreed on several aspects relating to its output policy at their various meetings on Sunday.
First was an agreement on the rollover of their group-wide cuts of around 2m b/d through until the end of 2025. These were previously set to expire at the end of 2024.
Secondly, a voluntary supply reduction amounting to 1.66m b/d from nine OPEC+ members – introduced in May 2023 – was also extended to the end of 2025. Similarly, these were initially set to expire at the end of this year.
Finally, the supply cuts the market was most interested in were the additional voluntary supply cuts of 2.2m b/d, which were set to expire at the end of June 2024. Members decided to extend these cuts until the end of September 2024, after which this supply will be gradually returned to the market through until September 2025. The return of these barrels to the market will largely depend on market conditions. It was largely expected that these additional voluntary cuts would be rolled over. If anything, the market would be fairly disappointed that they were only extended until the end of September rather than the end of 2024.
In addition, the UAE had its 2025 production target lifted by 300k b/d due to an increase in its production capacity.
In theory, the unwinding of additional voluntary supply cuts and an increase in the UAE production target means that from October 2024 through until the end of 2025, OPEC+ is planning to bring 2.5m b/d of supply back onto the market.
