In a significant move this weekend, OPEC+ agreed to extend most of its deep oil output cuts beyond 2024. The decision, aimed at shoring up the market amid weak global oil demand, high interest rates, and rising U.S. production, is expected to have far-reaching implications for the global economy.
OPEC+ is a group of leading oil-producing countries that includes members of the oil cartel, the Organization of the Petroleum Exporting Countries (OPEC), and some non-OPEC nations, most notably Russia.
The OPEC+ Decision: Implications for Oil Prices
As for the current production cuts in place since October 2022, OPEC+ has decided to extend most of its deep oil output cuts into 2025. The cuts include 3.66 million barrels per day (bpd) of reduced output, which were due to expire at the end of 2024, and voluntary cuts by eight members of 2.2 million bpd, expiring at the end of June 2024.
In total, OPEC+ is extending cuts of 3.66 million bpd by a year until the end of 2025, and prolonging cuts of 2.2 million bpd by three months until the end of September 2024.
The extension of these deep cuts is anticipated to keep oil prices above $80 a barrel. The move is intended to benefit OPEC member countries that incur losses when oil prices drop below their cost of production. However, for the rest of the fossil fuel-using world, this could mean continued economic strain, as already high energy costs continue to impact consumer spending in other categories.
The Role of Saudi Arabia and Russia
Saudi Arabia and Russia, the two largest oil exporters, have played a significant role in this decision. As the de facto leader, Saudi Arabia, with its vast oil reserves and spare production capacity, acts as a swing producer within OPEC+. It can and does adjust its output to influence global oil prices.
Russia, another major producer coordinates with Saudi Arabia to complement its role. Their influence in the decision to extend the supply cuts is viewed as indicative of the complex interplay of global economic interests and geopolitical dynamics.
OPEC+ Outlook
The extension of these cuts into 2025 suggests that OPEC+ is committed to maintaining oil prices at a level that is economically sustainable for its members. While the move supports the economies of oil-producing nations, it could potentially slow down economic recovery in other parts of the world by keeping energy costs high.
Key Takeaway
OPEC+ extended oil output cuts into 2025 to keep prices above $80 per barrel, benefiting countries that incur losses when prices fall below this threshold. The continued high cost of energy has a dampening effect on industrialized energy-dependent nations worldwide.
This depressive effect, which was expected to ease before 2025, will persist, as OPEC+ offers no economic relief, continuing to constrain spending in other areas.
