(+) A Quick Take on OPEC+ Production Cuts

On Sunday OPEC-plus agreed on complex structure to extend 3.66 million bpd of production cuts to the end of 2025. 2.2 million bpd of voluntary cuts will according to the deal gradually return to market from October this year.

The Voluntary cut of 2.2 million bpd led by Saudi Arabia`s 1 million bpd cut will be extended through third quarter this year before gradual returning barrels with monthly addition of volume through September 2025. According to people close to the matter an agreement was reach quickly. The initial plan was to hold the meeting in Vienna, but in May it was decided to hold a virtual meeting instead. Some delegates were invited to Riyadh for I physical meeting, the seven with voluntary cuts.

“We have cohesion among us” Prince Abdulaziz bin Salman, the Saudi Arabian Energy Minister told the media in a brief following the conference.

The market expected an extension of the voluntary 2.2 million bpd cuts, and benchmark Brent futures have fallen from April-highs down to low the low 80s. The recent weeks shift in market signal weighing prices down and showing a slight bearish view on the demand forecast compared to a month ago.

Releasing the voluntary cuts.

The markets attention was fixed on how OPEC+ planned to unwind the voluntary cuts without putting a massive downward pressure on prices. The group of eight members plans to unwind 2.2 million bpd of voluntary cut beginning in October. We believe they will add approximately 183 000 bpd of additional supply each month. OPEC made it clear that the monthly release of additional barrels can be paused or reversed, as market conditions change. “With the aim of supporting market stability, noting that this monthly increase can be stopped, or reversed, according to market developments.”- The Saudi Press Agency said. In light of recent forecasts we could see a market deficit of 1- 1.2 million bpd in the forth quarter which will give OPEC+ the necessary room to maneuver the additional barrels in to the market. Note that end of forth quarter typically shows weaker market conditions due to seasonal changes. With that market could end up in surplus in the first quarter of 2025.

Key points from the meeting

• 66 million bpd of production cuts extended to the end of 2025.

• 2 million bpd of voluntary cuts back into the market gradually from October 2024. GE Briefings estimates about 183 000 bpd of additional supply per month.

• The UAE gets a higher production baseline with 300 000 bpd increase. Other members will wait until 2026 for new production quotas. Currently, some members are not able to produce up to their quotas due to underinvestment and aging fields.

• The release of voluntary cuts can be paused or reversed based on market conditions.

• GE Briefings estimates of 1- 1.2 million bpd deficit on Q4.

• Could end up in surplus in Q1 2025.

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