OPEC+: a thousand cuts?

The OPEC+ ministerial meeting held in Vienna on 4 June resulted in new decisions on output cuts.

OPEC+ members agreed on further production cuts for 2024 of around 1.4 million b/d. According to the communiqué released following the Sunday meeting,[1] the level of overall crude oil production will be adjusted to 40.46 million b/d, starting 1 January 2024 until 31 December 2024.

Russia must trim its output by 650,000 b/d, from 10.478 to 9.83 million b/d. While the target for Saudi Arabia remains unchanged, the kingdom has promised to curb its output by 1 million b/d in July (and thereafter, if needed) amid flagging oil prices and a looming supply glut.[2] Hence, total curtailments put in place by OPEC+ stand at 3.66 million b/d (see Fig. 1), or 4.66 million b/d when including Saudi Arabia’s one-off cut for July.

OPEC+ has reaffirmed its commitment “to achieve and sustain a stable oil market, and to provide long-term guidance for the market.”[3]

Ahead of the OPEC+ meeting, oil prices edged up slightly, to $76 per barrel on 2 June, tilting toward $78 per barrel shortly after its decision became public on 5 June (see Fig. 2). Yet analysts do not expect crude oil to rise markedly from current levels.

For Saudi Arabia, $80.9 per barrel is the minimum price to guarantee sustained oil revenue to fund development projects aimed at diversifying the country’s economy away from oil.[4] The policy adopted by Saudi Arabia as the dominant cartel producer, coupled with Riyadh’s pledge to trim its output by 1 million b/d, is likely to send Brent prices higher in July.

The market is now awaiting the reaction of the United States, with higher oil prices not being a good option for Americans. In May, the Biden administration decided to refill the country’s strategic petroleum reserve. The US Department of Energy plans to buy 3 million barrels of oil[5] back into the reserve, which plunged to 355 million barrels on 26 May 2023, the lowest level since October 1983 (see Fig. 3).[6] While the US is not willing to pay above $72 per barrel, OPEC, by contrast, seeks to support sagging oil prices.