OPEC+ extends oil cuts through 2025

The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, have decided to extend their voluntary production cut of 2.2 million barrels of crude oil per day until 2025. This decision, made on Sunday, continues the cuts initially agreed upon in December, which were set to expire at the end of this month. These cuts are in addition to previous reductions totaling 3.66 million barrels per day, announced in 2022 and 2023. The aim is to counteract the effects of slowing demand and increasing output from the United States.

OPEC+ also outlined its production targets for 2025, which are largely unchanged from this year’s targets. Notably, the United Arab Emirates will see its production quota increase by 300,000 barrels per day, a change that will be gradually implemented from January through September 2025.

Despite these significant cuts, which account for about 5.7% of the global crude supply, and ongoing geopolitical tensions in the Middle East, global oil prices have dropped by around 10% since reaching a five-month high in early April. On Friday, Brent crude, the global benchmark, was trading at $82 a barrel, down from $91 in April following concerns over a suspected Israeli airstrike on Iran’s embassy in Syria. Similarly, the US benchmark, West Texas Intermediate crude, fell from nearly $87 per barrel to $78.

Saudi Arabia, according to the International Monetary Fund, needs Brent crude prices to be around $81 a barrel to balance its budget. The recent dip in prices is partly due to record US oil production, which has increased global supply, and concerns about weak demand in China and other major economies.

The International Energy Agency (IEA) recently revised its forecast for global oil demand growth this year, lowering it by 140,000 barrels per day to 1.1 million barrels per day due to weak demand in developed economies, particularly in Europe. Despite this lower demand growth forecast, the IEA has warned of a potential supply shortage. The agency expects global oil supply to grow by only 580,000 barrels per day this year. In March, the IEA projected a supply deficit in 2024 if OPEC+ maintained its output cuts.

This latest decision by OPEC+ coincides with Saudi Arabia selling additional shares in its state oil company, Aramco. The government is selling less than 1% of the Riyadh-listed company, a move expected to generate $13 billion to fund economic diversification projects.