OPEC Extends Cuts in Production

The Organization of the Petroleum Exporting Countries (OPEC) reached an agreement to extend production cuts until 2024, signaling a united front among member nations to stabilize oil prices in the face of economic uncertainty. The decision came after intensive negotiations with African countries on the measurement and implementation of the cuts.

Saudi Arabia, a leading player of OPEC, announced that it will voluntarily implement an additional cut of 1MMb/d. This voluntary reduction is considered the most substantial contribution to the effort in rebalancing supply and demand dynamics. Starting in July, Saudi Arabia will limit its oil exports to 9MMb/d.

In early April 2023, OPEC had already cut oil production by 500Mb/d for the remainder of the year, starting in May. However, despite the production cuts, China's economic activity had a notable impact on oil futures, affecting oil prices throughout May. The interconnectedness of the global economy continues to exert influence on oil markets, presenting challenges to OPEC's efforts to stabilize prices.

Nevertheless, the recently announced extension of production cuts led to a rise in oil prices. West Texas Intermediate (WTI) crude oil surged by 4.6%, reaching US$75.06/b. Brent crude oil also witnessed a 2.4% increase during Asian trade on June 5, settling at about US$77/b.

While Saudi Arabia demonstrated its commitment to reducing oil production, there are concerns surrounding Russia's compliance with the agreement. Moscow announced that it will extend its voluntary cut of 500Mb/d until the end of 2024. Industry experts remain skeptical about whether Russia will uphold its promise, particularly as the country's oil exports continue unabated despite Western sanctions. Furthermore, the number of idle oil wells raises questions about its long-term production stability.

In the agreement, the United Arab Emirates (UAE) secured a higher production quota for 2024, positioning itself as a major beneficiary within OPEC+. However, this increase in quota came at the expense of African members, which were requested to relinquish a portion of their unused production quotas, as reported by Bloomberg.

The extension of production cuts until 2024 reflects OPEC's determination to address the challenges posed by the volatile oil market.