OPEC and its allies will maintain their tight grip on oil supply, with several members on March 3 announcing extensions of their voluntary production cuts that had been scheduled to expire at the end of the month.
Saudi Arabia, the UAE, Kuwait and Algeria said their cuts would remain through the second quarter, while Russia said it would implement a new formula that incorporates various output and export reductions month by month.
The supply curbs will see the 22-country OPEC+ alliance continue to rein in barrels to tighten the market into the Northern Hemisphere summer, when oil demand typically peaks, as the group battles growing output from the US, Brazil and other rival producers, while global economic indicators have yet to quell fears of recessions in major consuming nations.
“This additional voluntary reduction comes to strengthen the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets,” the countries said in coordinated statements, adding that the volumes would be “restored gradually” after their expiry, as market conditions warrant.
The alliance in November had announced its latest tranche of production cuts, including a 1 million b/d reduction from Saudi Arabia and a combined 700,000 b/d from several other members. Those are additional to several other rounds of production cuts in place under the OPEC+ Declaration of Cooperation agreed until the end of 2024.
OPEC kingpin Saudi Arabia, which co-chairs the alliance with Russia and has led the group’s efforts to bolster prices, will keep its crude production at two-year lows of around 9 million b/d through June, an energy ministry official said.
Russia, which for the first quarter had committed to only a mix of crude and product export cuts, will now make some formal reductions to its crude production, Deputy Prime Minister Alexander Novak said.
Russia will lower crude output by 350,000 b/d and exports by 121,000 b/d in April; 400,000 b/d in production and 71,000 b/d in exports in May; and 471,000 b/d from production in June.
A UAE official, meanwhile, told S&P Global Commodity Insights that his country has agreed to maintain its quota of 3.02 million b/d through the second quarter.
Algeria, meanwhile, said its output will remain at around 908,000 b/d until the end of June, a continuation of its 51,000 b/d cut, according to a statement from its energy ministry.
“Afterwards, in order to support market stability, these additional cut volumes will be returned gradually subject to market conditions,” the ministry said.
Kuwait will also extend its voluntary oil production cut until the end of June, the official Kuna news agency said, citing oil minister Imad al-Atiqi. He said that production in Kuwait will remain at 2.413 million b/d.
As well, Iraq and Kazakhstan have agreed to implement so-called compensation cuts to make up for overproducing their quotas in January. They have yet to detail their production plans for the months ahead.
Monitoring the market
A nine-country Joint Ministerial Monitoring Committee co-chaired by Saudi Arabia and Russia is scheduled to convene April 3 to review market conditions and assess member compliance with their quotas. The committee can also make recommendations for changes to production policy, which then have to be unanimously agreed by the full alliance, which has its next meeting set for June 1 in Vienna.
Analysts had largely expected the group to extend their cuts beyond March, as the group battles sluggish prices that remain under pressure from growing non-OPEC supply and economic uncertainty, though the eventual total duration of the cuts remains an open question.
S&P Global Commodity Insights forecasts that the OPEC+ alliance may have to keep the cuts in place until the end of the year.
Most OPEC+ producers need higher prices. Platts, part of S&P Global, assessed Dated Brent at $87.50/b on March 1, below Riyadh’s fiscal breakeven oil price of $88/b and Moscow’s of $94/b in 2024, as estimated by analysts with S&P Global.
