OPEC+ is expected to keep reducing oil production on purpose to avoid a price drop in a market where there is too much oil
OPEC and its allies (OPEC+) are expected to keep cutting their oil production voluntarily to help stabilize the global oil market and prevent prices from falling due to fears of too much oil being available.
OPEC+ supply cuts
On Sunday, OPEC+ delayed its meeting until December 5, which raised concerns about whether they could keep the cuts that have been supporting oil prices.
Commerzbank analyst Carsten Fritsch told AFP that OPEC+ is likely to decide on Thursday to delay the production increase for another three months, until the end of March. However, he added there are still uncertainties because some countries want to increase their production.
Without a new agreement, the eight countries—Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the UAE—that have been cutting production by 2.2 million barrels per day, will start increasing output in January, bringing it back to 2022 levels.
OPEC+ countries have already delayed the production increases twice. The increases were originally planned to start in October and later in December.
What to watch for
OPEC+ will hold a virtual meeting at 2:30 pm AST on Thursday, according to a source close to the OPEC organization in Vienna, AFP reports.
Impact on the market
With US President-elect Donald Trump planning policies to increase domestic oil production and China’s economic troubles reducing its oil demand, the planned production cuts may not have a big impact.
DNB Bank analysts warned that there won’t be space for more OPEC+ oil in 2025, and any increase in output could lead to lower crude prices, AFP said.
An increase in production could also be a problem for Saudi Arabia, which relies on high oil prices to support its efforts to diversify its economy. Saudi Arabia needs strong oil prices to achieve its Vision 2030 and wants OPEC to stick to production cuts, according to Energy Intelligence analyst Amena Bakr.
Since Saudi Arabia and Russia have a lot of influence within OPEC+, analysts believe they will try to convince other countries to postpone any planned increases in supply.
However, Rystad Energy analyst Jorge Leon said countries like Kazakhstan and the UAE, which have extra oil production capacity, still want to increase production.
Surprising fact
The International Energy Agency (IEA) said last month that even if OPEC+ continues to cut oil production, the global supply will still be more than 1 million barrels per day higher than the demand in 2025.
Big number
OPEC+ countries are currently holding back 6 million barrels of oil per day, including 2.2 million barrels per day that they plan to bring back to the market.
Oil down
Oil prices fell on Thursday as the market waited for OPEC+’s decision on production cuts. By 10 am AST, West Texas Intermediate (WTI) crude dropped 0.1% to $68.48 per barrel, while Brent crude dropped 0.01% to $72.30 per barrel.
Published: 5th December 2024
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