OPEC+ extends voluntary cuts to September, sets phase-out schedule

Key OPEC+ members will begin scaling back their voluntary production cuts in October, under a complex deal announced June 2 that also extends most other existing quotas through to the end of 2025, as the alliance aims to start clawing back market share without upsetting oil prices.

Saudi Arabia and seven other countries have made some 2.2 million b/d in voluntary cuts that were due to end after June, but will now be maintained through September, before being gradually eased by about 180,000 b/d monthly through September 2025, the group said after OPEC+ ministers convened for talks.

Meanwhile, a separate set of output cuts totaling some 3.7 million b/d that had been phased in since October 2022 will stay in place now through the end of 2025 -- a year beyond their scheduled end-2024 expiry -- with the exception of the UAE, which was granted a quota increase of 300,000 b/d to be gradually implemented from January.

The complex layers of cuts have been aimed at shoring up flagging crude prices, which are below what many OPEC+ members need to balance their budgets. Persistent high inflation in major consuming countries and uneven economic indicators have pressured the market, along with surging output from the US, Canada, Brazil, Guyana and other rival producers.

"The extension of the cut was expected, so that announcement by itself is unlikely to impact prices," said Jim Burkhard, head of crude oil research at S&P Global Commodity Insights. "However, the extension increases the odds of crude oil inventories declining over the summer months, which could lift prices for time."

Platts -- part of Commodity Insights -- assessed Dated Brent at $80.18/b on May 31, down more than $10/b from the recent highs in mid-April and below a level that allows many OPEC+ producers to balance their budgets.

"We are waiting for interest rates to come down, a better trajectory of economic growth, not just in some pockets here or there, but also more certainty on the economic trajectory, and that will probably cause demand to increase," Saudi energy minister Prince Abdulaziz bin Salman told reporters in a video briefing.

The decision comes with global oil demand expected to rise from the US summer driving season, though market watchers have been divided on the range of growth. OPEC's latest forecast is for a 2.2 million b/d increase in global demand in 2024. This is significantly higher than 1.7 million b/d estimated by Commodity Insights and 1.1 million b/d by the International Energy Agency.

"The jury is still out," Prince Abdulaziz said of the forecasts. "OPEC is probably taking a higher assessment when it comes to demand, but there are also those who are taking a very pessimistic view. But we don't know how these things will end up. That's why we want to move diligently, cautiously."

For now, he said, gasoline and diesel prices -- a major talking point for politicians facing elections -- are "not a source of worry for anybody."

Many analysts had expected the voluntary cuts to be extended, and the decision is "net neutral" for prices, Commodity Insights said in a note.

"But prices are likely to rise once seasonal demand takes off and inventories decline," it said. "Non-OPEC+ supply remains a downside risk, as does growing OPEC+ spare capacity."

Compensation cuts

Ministers from the group making voluntary cuts, which includes Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman, met in person in Riyadh for the meeting, while the rest of the OPEC+ alliance dialed in online.

The in-person gathering helped hammer out the schedule of voluntary cut rollbacks, while also negotiating the UAE's 2025 quota increase.

African members, who are producing below their targets, and quota-exempt countries including Iran and Libya were not invited.

The UAE, which has long agitated for a higher production baseline and has overproduced its quota in recent months, saw 300,000 b/d added to its quota, which will be phased in over the first nine months of 2025. The Gulf state will have a basic quota of 3.519 million b/d from 2025, not including any voluntary cut it might make.

Energy minister Suhail al-Mazrouei told reporters in Riyadh he was "satisfied" with the boost to its quota, but declined to elaborate on how it was agreed.

Russia also appeared to get a slight quota bump to 9.949 million b/d for 2025, from 9.828 mil b/d for 2024, not including its voluntary cut.

Several of the group in Riyadh are among the biggest OPEC+ compliance violators, including Russia (200,000 b/d over quota in April), Iraq (240,000 b/d) and Kazakhstan (72,000 b/d) according to the Platts OPEC+ survey by Commodity Insights.

Those three countries must submit plans to compensate for their excess production in 2024 by the end of June, the alliance said.

Baseline review

OPEC+ also agreed to defer a baseline review to 2025, with secondary sources required to submit capacity estimates by November to influence 2026 production quotas. The previous baseline review in 2023 concentrated on underproducing African members and resulted in harsh quota cuts, which led Angola to quit the group after 19 years of membership.

The group has agreed to hold its next ministerial meeting on December 1.

Meetings are typically held in person in Vienna, although June 2's gathering was held virtually for the second time in a row.

Speaking after the meeting Iranian Oil Minister Javad Owji said that the oil market is now experiencing a critical period, the ministry's news service Shana reported.

"Based on published reports and analysis, there are serious doubts on both sides of global oil supply and demand, each of which can bring its own consequences for the prospects of future developments. At the same time, the increase in the activities of paper traders... has also added to the concerns," Owji said.

The OPEC+ meeting coincided with Saudi Arabia's launch of a much-anticipated secondary share offering of state-run energy giant Saudi Aramco that is expected to raise some $12 billion to help fund the kingdom's economic diversification efforts.

Aramco has been Saudi Arabia's main fiscal engine, though slumping oil prices and the OPEC+ cuts have caused the kingdom's finances to take a hit in recent quarters.

Saudi Arabia, the world's largest crude exporter, has borne the brunt of OPEC+ cuts, having committed to hold its output to 9 million b/d, well below its capacity and at levels not seen since the height of the coronavirus pandemic.

Voluntary curbs to be unwound

Source: OPEC

Unit: thousand b/d