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OPEC+ members led by Saudi Arabia and Russia have extended the latest round of voluntary oil production cuts for another three months in a bid to boost prices that have remained low despite ongoing geopolitical tensions.
The restrictions were due to expire at the end of March but will last until the end of June, according to Saudi Arabia’s state news agency.
The measures add to a series of production cuts by OPEC+ members starting in 2022, designed to support prices against a backdrop of rising US output and weak global demand. Since the latest voluntary cuts took effect in January, they have lowered members’ combined production targets by about 2.2 million barrels per day.
“The decision sends a message of cohesion and confirms that the group is in no rush to restore supply volumes, supporting the idea that when this finally happens, it will be gradual,” said Giacomo Romeo, an analyst at Jefferies.
Brent crude, the international benchmark, has risen 6% and the U.S. equivalent WTI nearly 8% since the latest cuts were announced in late November.
But despite tensions in the Middle East, including the war between Israel and Hamas and attacks on commercial shipping by the Houthis, the price of oil remains well below the $100 a barrel level last seen in the summer of 2022.
Traders had largely expected the decision to extend curbs, with crude prices rising last week ahead of the announcement. Brent rose more than 2% last week to close above $83 a barrel on Friday, while WTI closed just below $80 a barrel, up more than 4%.
OPEC+ is “trying to keep the market in balance,” Amrita Sen told Energy Aspects. “Oil prices are much more stable. . . but they want to ensure that stability continues,” she said.
Saudi Arabia has shouldered the bulk of the cuts, having cut its production by 1 million barrels a day since July. In total, the kingdom is producing 2 million barrels per day less than in October 2022. In January, it abandoned its plans to expand its daily oil production capacity by 2027, in a major reversal of politics.
The country needs an oil price close to $100 a barrel to finance Crown Prince Mohammed bin Salman’s ambitious economic reform program, but his efforts to cut production have not been welcomed by the United States, which is concerned about the effects on inflation.
Kuwait, Algeria, Kazakhstan, Oman, Iraq and the United Arab Emirates also confirmed they will maintain voluntary production cuts.
All eyes are now on the biannual meeting of OPEC+ ministers on June 1, where analysts expect the group to align on production policy for the second half of the year.
Member countries “hope to put barrels back on the market” in the second half of this year, the Sen said. “But that’s not a guarantee. It depends on market conditions. They will never add barrels to create a surplus on the market,” he added.
The outlook for oil demand this year remains unclear. The IEA expects oil demand to grow by 1.2 million barrels per day, about half the pace of 2023, while OPEC believes demand growth will be higher, at 2.2 million barrels per day.