After the latest meeting, the OPEC+organization has agreed to extend the collective production reduction measures until 2025, and has also extended some resource production reduction agreements until September this year.
Representatives attending the meeting stated that these restrictive measures are aimed at boosting oil prices and avoiding global oversupply caused by factors such as increased production from other non member producing countries (especially US shale oil producers) and reduced demand in the context of high interest rates and high inflation.
The meeting scheduled for June 2nd was originally planned to be held at the headquarters in Vienna, but later changed to video format. Earlier this Friday, it was confirmed that it would be held in the Saudi capital Riyadh. The constantly adjusted plan has added a lot of attention to this meeting.
Extend production reduction measures
OPEC+member countries are currently reducing production by 5.86 million barrels per day, accounting for approximately 5.7% of global demand. Among them, 3.66 million barrels per day is the official production reduction standard, known as collective production reduction, which is scheduled to expire at the end of June this year; In addition, it also includes voluntary production reduction measures proposed by multiple member countries, including 2.2 million barrels per day.
These voluntary production reduction member countries include Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the United Arab Emirates.
On Sunday, OPEC+stated in a statement that the organization has agreed to extend the "collective production reduction measures" of its member states until the end of 2025. The outcome of the meeting means that the production reduction agreement will be extended for another year and a half.
The voluntary production reduction measures previously announced by member countries such as Saudi Arabia will also be extended until the third quarter of 2024, including the daily production reduction of 1 million barrels implemented by Saudi Arabia for the first time in July last year.
The Saudi Ministry of Energy issued a statement on Sunday stating that the agreement to voluntarily reduce production by 2.2 million barrels per day will be extended until September, followed by gradual cancellation until September 2025.
Prior to the official start of the meeting, market traders and analysts generally expected OPEC to extend its production reduction agreement. Analysts say that in the face of geopolitical uncertainty, the 22 OPEC+countries may choose to respond cautiously.
It is reported that the next meeting of OPEC+will be held on December 1, 2024.
Oil price fluctuations
In April this year, due to the conflict in the Middle East threatening exports to the region, crude oil prices soared to a high of over $90 per barrel, but have since been falling. On May 31st, Brent crude oil futures closed at $81.62 per barrel, a cumulative decline of 7.1% from the previous month.
In addition, the premium of Brent crude oil futures spot contracts has been shrinking, indicating that the global market is shifting from shortage to surplus.
The data released by the International Energy Agency indicates that OPEC+needs to persist in reducing production in order to potentially create a global supply shortage of crude oil in the second half of the year. If the group lifts restrictions and resumes production, there will be a new oversupply.
The decline in oil prices threatens the income of oil producing countries such as Saudi Arabia. But in order to ensure tight supply, the organization may need to ensure that all member countries fully fulfill their commitments to reduce production, which has caused disagreements within the organization.
Although some countries such as Saudi Arabia, Kuwait, and Algeria have quickly fulfilled their agreed quotas, other countries such as Iraq, Kazakhstan, and Russia have been hesitant to do so, continuing to exceed their designated quotas by hundreds of thousands of barrels per day.
It is worth mentioning that at the time of the OPEC+meeting, the Saudi government has initiated a $12 billion stock allocation of state-owned oil giant Saudi Aramco. It is reported that the stock allocation has been oversubscribed, and Saudi Aramco will announce the results again on June 9th. This move aims to raise funds for the "2030 Vision" transformation plan of the Crown Prince Mohammad bin Salman. However, according to the International Monetary Fund (IMF), sufficient funding for this economic transformation plan can only be provided when oil prices approach $100 per barrel.