On June 2, an important agreement on oil production was reached. The oil cartel and non-OPEC+ oil-producing countries led by Russia not only agreed to extend the more than 6-year agreement on voluntary oil production cuts for 2025, but also developed a timetable for its gradual easing starting in October this year.
The new agreement was reached at the 54th meeting of the Joint Ministerial Monitoring Committee of OPEC+ countries, which took place on June 1 not in Vienna, as usual, but in Riyadh.
The easing of restrictions was expected, but was not expected to start so early. Before the meeting in Riyadh, traders and analysts predicted the extension of restrictions designed to compensate for sharply increased oil production by non-OPEC+ competitors, led by the United States. Under the new agreement, 8 oil-producing countries will increase production by 750 thousand barrels per day by January 2025, Monocle reports.
Apparently, the cartel and its allies decided not to go against the market and the macroeconomic situation in the world, even though it is partly formed under the influence of someone else’s decisions, and much more subjective than the decisions of representatives of a group of countries. Prices for black gold have been falling in recent weeks due to disappointing forecasts for the global economy in general and China’s economy in particular.
Suffice it to say that just last month the price of a barrel of Brent crude oil fell by 7.1% to $81.62 (May 31). The soap opera around the reduction of the discount rate by the U.S. Federal Reserve also played its role in the decline in oil prices.
Of course, not everything is unambiguous, and there are quite optimistic forecasts about the demand for oil in the perspective of a year or two. In this regard, it should be emphasized that OPEC+ actions in terms of production expansion are very moderate.
The new OPEC+ agreement extends the production cap of approximately 2 million barrels per day, which this year played a decisive role in keeping prices above $80 per barrel, and which expired on June 30. The OPEC+ countries agreed, Bloomberg reported citing Saudi Arabia’s Energy Ministry, to extend the agreement for the third quarter, and starting from the fourth quarter to gradually ease production restrictions.
At the end of this year, incidentally, other production restrictions limiting production to 39 million bpd expire. That agreement, OPEC said in a statement, has been decided to extend for another year, until the end of 2025.
“The agreements in Riyadh remove a significant amount of oil from the markets this year and next,” commented Amrita Sen of Energy Aspects Ltd. on the results of the meeting in Saudi Arabia. — The agreements keep OPEC+ in control of the (oil) market.”
The agreements demonstrate the desire of Riyadh, the informal leader of OPEC, to strike a balance between supporting oil markets by restricting supply — and easing production restrictions, which have been repeatedly opposed by some members of the oil cartel. Lower production deprives the oil-producing countries participating in the OPEC+ agreement, especially, incidentally, Saudi Arabia, which needs a barrel price of $100 to finance its ambitious infrastructure plans, of a significant part of its revenues.
In parallel with the OPEC+ meeting, Riyadh again sold Aramco shares (this time for $12 billion) to finance the grandiose plans of Crown Prince Mohammed, who has been virtually ruling the kingdom for several years.
At the heart of the agreements reached in Riyadh to ease restrictions is the contentious issue of oil capacity in a number of oil-producing countries. It was on the basis of oil capacities, which were analyzed by independent experts, and calculated the specific production volumes and restrictions of these countries in 2025.
A number of OPEC members demanded an upward revision of their restrictions. According to experts, the United Arab Emirates (UAE) benefited the most from the new agreement, having received permission to increase production by 300,000 b/d in 2025.