Key members of OPEC+ alliance to put off increasing oil production
5 December 2024, 14:34
The countries face weaker than expected demand and competing production from non-allied countries.
Members of the OPEC+ alliance of oil exporting countries decided on Thursday to put off increasing oil production as they face weaker-than-expected demand and competing production from non-allied countries — factors that could keep oil prices stagnant into next year.
The OPEC+ members decided at an online meeting to postpone production increases, which had been scheduled to take effect on January 1.
The plan had been to start gradually restoring 2.2 million barrels per day over the course of 2025.
That process will now be pushed back to April 1 2025 and production increases will gradually take place over 18 months until October 2026.
OPEC+ – a 22-country alliance consisting of OPEC members including Saudi Arabia and other oil-producing countries, such as leading non-OPEC member Russia – have imposed several sets of cuts to agreed output to support prices.
Oil prices have been slack due to weaker-than-expected demand from China as well as increased production from countries like Brazil and Argentina that aren’t in the OPEC+.
Oil analysts have been busy reducing their estimates for demand for next year, meaning that OPEC+ could remain in a bind well into 2025.
The Saudis need oil revenue to carry out Crown Prince Mohammed Bin Salman’s ambitious plans to diversify his country’s economy, including the development of Neom, a futuristic city in the desert.
For Russia, oil export revenues are a key pillar of state finances and funding for the war against Ukraine. Holding back production risks losing market share, yet increasing production and sales could lower prices in a global economy that analysts say is already well supplied with oil.
US oil has been stuck around 70 dollars (£54) per barrel and traded at 68.92 dollars on Thursday ahead of the meeting, down from 80 dollars in August. International benchmark Brent crude traded at 72.66 dollars per barrel, down from around 80 dollars in July.
OPEC has cut its forecast for 2025 demand growth to 1.54 million barrels per day, from 1.85 million barrels per day in July.
That is at the high end of estimates compared to those from the International Energy Agency at 990,000 barrels per day, the US Energy Information Administration at 1.22 million and energy intelligence firm Rystad Energy at 1.1 million.
Analysts at Commerzbank foresee Brent prices averaging 75 dollars per barrel in the first quarter of next year and 80 dollars for the remaining three quarters.
In the United States, Donald Trump’s return to the White House will likely lead to more fossil fuel production.
Not only has the President-elect campaigned on more drilling, but his Treasury secretary nominee Scott Bessent has put together an economic plan with the goal of increasing domestic oil production by the equivalent of three million barrels a day.
Mr Bessent has indicated that the additional oil production would reduce inflationary pressures for US consumers, but Mr Trump’s team has not fully outlined why oil producers would ramp up supplies and lower prices to levels that could hurt their profits.
The Organisation of the Petroleum Exporting Countries (OPEC) is an intergovernmental organisation founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
It has since expanded to 12 member countries.
In 2016, largely in response to dramatically falling oil prices due to US shale oil output, OPEC signed an agreement with 10 other oil-producing countries to create OPEC+.
