OPEC+ delays plans to begin tapering voluntary cuts to December

OPEC and its allies have delayed plans to start gradually rolling back 2.2 million b/d of voluntary cuts by two months to December, the group announced Sept. 5 , in a bid to support sinking oil prices.

The OPEC+ alliance had planned to slowly reintroduce volumes trimmed by eight members -- Saudi Arabia, Kuwait, Algeria, Oman, Kazakhstan, Iraq, Russia and the UAE – through late 2025, depending on market conditions and starting with 190,000 b/d in October.

However, in a statement following an unannounced virtual meeting Sept. 5, the countries said they would instead extend the cuts through November before gradually phasing them out between Dec. 1 and the end of 2025.

According to a table released by OPEC, the eight members will add a collective 189,000 b/d in December and 207,000 b/d in January, "with the flexibility to pause or reverse the adjustments as necessary."

Sources told S&P Global Commodity Insights that the negotiation was the product of extensive talks over recent days, as ministers weighed the potential market reaction to putting more crude on the market, and Iraq and Kazakhstan, who have overproduced their quotas for months, were pressured on their commitment to compliance.

Crude prices have given up their summer gains, dragged down by tepid Chinese economic outlooks and a potential recovery in Libyan production from a week-long shutdown, and traders appeared unmoved by the OPEC+ announcement.

Platts, part of Commodity Insights, assessed the Dated Brent benchmark at $75.04/b on Sept. 5, down 0.25% from the previous day and the lowest price since Dec. 13. Front-month ICE Brent futures, which had initially jumped following news of the OPEC+ delay, quickly retreated, falling to a 15-month low of $73.16/b at the London close after hitting an intraday high of $74.19/b.

The 2.2 million b/d of voluntary cuts are part of 5.8 million b/d the alliance is currently holding offline, denting its market share to rival producers from the Americas and other emerging plays. A day ahead of the decision, a delegate told Commodity Insights he was concerned that any OPEC+ production boost would be “negative to the market."

Meanwhile, in a note ahead of the decision, investment bank HSBC said that “holding off [the production increase] may be interpreted as a belated admission by OPEC that oil demand is weak.”

The new start of the production rises coincides with the next OPEC+ ministerial meeting, scheduled for Dec. 1 in Vienna.

Oversupply concerns

Dated Brent has fallen $7.20/b since Aug. 29, the height of an oil shutdown by Libya’s eastern faction in response to efforts by the western government in Tripoli to sack the head of the country’s central bank.

While the crisis took 63% of Libyan crude offline, according to the Libyan National Oil Corp., UN-led negotiations between the two parties Sept. 3 appeared to have defused the situation, fueling hopes of a resumption -- and an oil sell-off.

Payam Hashempour, research associate director at Commodity Insights, said the market reaction to the Libya talks reflected existing concerns about oversupply.

Meanwhile, overproduction by Iraq and Kazakhstan this year, reaching 321,000 b/d and 95,000 b/d respectively in July, has reduced the alliance’s capacity to shore up the market, leading the countries to submit compensation plans.

"The overproducing countries also reconfirmed their commitment that the entire overproduced volume will be fully compensated for by September 2025," including overproduction in August, the group said in its statement.

OPEC recently nudged down the estimated “call” on OPEC+ crude, the quantity of oil the alliance must produce to balance the market, from previous estimates, but still expects demand for its crude to outstrip supply in the next two quarters.

The group sees the call on OPEC+ crude in the fourth quarter of 2024 at 43.8 million b/d, and Q1 2025 at 42.6 million b/d, according to the latest monthly oil market report in August, well above July output of 40.907 million b/d, as judged by secondary sources, including the Platts OPEC+ Survey from Commodity Insights.