Commodities
Explainer-What new OPEC+ oil output cuts are in place after Thursday deal
© Reuters. FILE PHOTO: A view of the logo of the Organization of the Petroleum Exporting Countries (OPEC) outside their headquarters in Vienna, Austria, November 30, 2023. REUTERS/Leonhard Foeger/File Photo
By Alex Lawler
LONDON (Reuters) – OPEC+ oil producers on Thursday agreed to voluntary output cuts totalling about 2.2 million barrels per day (bpd) for the first quarter of 2024 led by Saudi Arabia rolling over its current voluntary cut.
Included in this figure is an extension of existing Saudi and Russian voluntary cuts of 1.3 million bpd, meaning the new element of the cut is about 900,000 bpd. The new cuts come on top of earlier curbs announced in various steps since late 2022.
OPEC+ negotiations over production quotas have often been difficult in the past, most recently at their June meeting.
WHAT CUTS WERE IN PLACE BEFORE THURSDAY?
OPEC+ in June extended oil output cuts of 3.66 million barrels per day (bpd), or about 5% of daily global demand, until the end of 2024.
In addition, Saudi Arabia since July has been making a 1 million-bpd voluntary reduction in output lasting until the end of December 2023. A Russian cut in oil exports of 300,000 bpd also lasts until the end of 2023.
HOW DOES THE NEW DEAL AFFECT OUTPUT TARGETS?
The latest round of cuts was announced by the individual countries on Thursday at the end of their online meeting.
OPEC+ issued a statement summarising the voluntary cuts as amounting to 2.2 million bpd and said they come on top of earlier ones announced in April 2023.
OPEC+ also revised 2024 targets for Nigeria, Angola and Congo after reviews by outside analysts. Angola has protested to OPEC about its lower 2024 quota which it says is too low.
The following table shows OPEC+ pledged cuts and production targets for the first quarter of 2024 in millions of barrels per day, based on information from OPEC, individual nations and Reuters calculations.
Country Q1 2024 Implied Q1 Output Actual
voluntary cuts 2024 targets** target after output (Oct
pledged Q1 2024 2023)*
Algeria 0.051 0.908 0.959 0.96
Angola 0.000 1.100 1.100 1.15
Congo 0.000 0.277 0.277 0.26
Equatorial 0.000 0.070 0.070 0.06
Guinea
Gabon 0.000 0.169 0.169 0.22
Iraq 0.220 4.009 4.22 4.38
Kuwait 0.135 2.413 2.548 2.57
Nigeria 0.000 1.500 1.500 1.35
Saudi Arabia 1.000 9.000 9.978 9.01
UAE 0.163 2.912 3.075 3.25
Azerbaijan 0.000 0.551 0.551 0.49
Kazakhstan 0.082 1.468 1.55 1.63
Mexico 0.000 1.753 1.753 1.67
Oman 0.042 0.759 0.801 0.8
Russia*** 0.500 8.949 9.449 9.53
Bahrain**** 0 0.196 0.196 0.85
Brunei 0 0.083 0.083
Malaysia 0 0.401 0.401
South Sudan 0 0.124 0.124
Sudan 0 0.064 0.064
Total OPEC-10 1.569 22.358 23.896 23.21
Total Non-OPEC 0.624 14.348 14.972 14.98
Total OPEC+ 2.19 36.706 38.868 38.19
* IEA figures
** Angola, Congo and Nigeria targets taken from OPEC statement putting their achievable production at this level
*** Russia is cutting its oil and product exports by 300,000 bpd until the end of 2023 and promised to deepen the cuts to 500,000 bpd of oil and oil product exports in the first quarter 2024.
**** Figure is total for Bahrain, Brunei, Malaysia, Sudan and South Sudan
Investing.com — Oil prices settled lower Friday, ending the week with a loss as weaker U.S. nonfarm payrolls stoked concerns about an economic-led slowdown in crude demand.
At 2:30 p.m. ET (1430 GMT), the futures (WTI) traded fell 2.1% to settle at $67.67 a barrel, while contract fell 2.2% to $71.06 per barrel.
U.S. economic slowdown worries resurface after weak jobs report
The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions.
Nonfarm payrolls came in at 142,000 last month, up from a downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000.
Following the release, bets that the Fed will introduce a deeper 50 basis-point rate cut — rather than a shallower 25 basis-point reduction — increased.
Concerns about the demand come just a day after OPEC+ said it had agreed to postpone a planned increase in oil production for October and November.
U.S., Europe working on Iran sanctions
Geopolitical tensions ratcheted up on Friday after the U.S. and Europe they were working on sanctions to impose on Iran after the Tehran sent missiles to Russia.
The U.S. had previously warned Iran about transferring missiles to Russia, saying it would represent a major escalation in Iran’s support of Russia’s war against Ukraine.
(Reuters) – Goldman Sachs adjusted its expectations for OPEC+ oil production saying it now expects three months of production increases starting from December instead of October, the bank said in a note on Friday.
OPEC+ has agreed to delay a planned oil output increase for October and November, the producers group said on Thursday after crude prices hit their lowest in nine months, adding it could further pause or reverse the hikes if needed.
However Goldman Sachs maintained its range of $70-85 per barrel and a December 2025 Brent forecast at $74 per barrel.
The investment bank expects the effects of a modest reduction in OPEC+ supply in the upcoming months to be counterbalanced by easing effects from the current softness in China’s demand and faster-than-expected recovery of Libya’s supply.
“We still see the risks to our $70-85 range as skewed to the downside given high spare capacity, and downside risks to demand from weakness in China and potential trade tensions,” Goldman Sachs said.
Brent crude futures were down $1.63, or 2.24%, to $71.06 a barrel on Friday, their lowest level since December 2021. U.S. West Texas Intermediate crude futures fell $1.48 on Friday, or 2.14%, to $67.67, their lowest since June 2023. [O/R]
Investing.com — Strategists at Citi Research said oil prices could decline to around $60 per barrel by 2025, citing a significant market surplus as the primary driver.
While recent supply disruptions in Libya and a delayed production cut unwinding by OPEC+ have offered short-term support for Brent prices in the $70-72 range, Citi views this as temporary.
“At the time of writing, markets have not reacted to the OPEC+ decision, with Brent around flat to the 4 September close. Still, the Libyan situation could take months rather than a week to resolve, strategists wrote.
They highlight the likelihood of a strong market surplus emerging next year, pushing prices lower.
“We recommend selling on a bounce toward ~$80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges,” the note states.
OPEC+ has delayed the start of its planned production cut unwind from October 2024 to December 2024, with the process now set to conclude by the end of 2025. This decision comes in response to recent market weakness and price declines, despite ongoing disruptions to Libyan oil supplies and broader economic concerns in the U.S. and China.
Separately, Bank of America’s Commodities Research team has revised down its price forecast to $75 per barrel for the second half of 2024, down from nearly $90, and for 2025, reduced from $80.
The team cites concerns about growing global oil inventories despite assuming OPEC+ will delay planned production increases. They note that weaker demand growth, combined with record OPEC+ spare capacity exceeding 5 million barrels per day, has dimmed the outlook for oil prices.
“In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned,” BofA strategists said. This surplus in capacity, along with slower demand, also reduces the risk of price spikes from potential geopolitical disruptions.
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