The Organization of the Petroleum Exporting Countries and its allies (OPEC+) are likely to agree to extend their current production curbs throughout 2024 and potentially into 2025, according to sources familiar with the negotiations. This decision comes amidst concerns about sluggish global demand growth, rising interest rates, and increasing competition from US shale producers.
The group, which controls a significant portion of the world's oil supply, is scheduled to meet virtually on Sunday. However, key ministers are expected to convene in person at the Saudi Arabian capital, Riyadh, to finalize the details of the production cuts. The proposed extension could involve maintaining all or part of the current 3. 66 million barrel-per-day (bpd) production cut throughout 2025. Additionally, some or all of the voluntary cuts of 2. 2 million bpd might be extended into the latter half of 2024.
The decision to extend the production cuts reflects OPEC+'s desire to maintain stability in the oil market. Currently, oil prices are hovering around $80 per barrel, which falls short of the level required by many member states to balance their budgets. The slowdown in China's economic growth, the world's largest oil importer, has dampened demand for the commodity. Furthermore, rising interest rates globally could potentially stifle economic activity and further reduce oil consumption.
On the other hand, the production cuts face the challenge of increasing output from the United States. US shale oil producers have been ramping up production in recent months, capitalizing on the higher oil prices. This could potentially offset the impact of OPEC+'s production curbs and put downward pressure on prices.
The decision by OPEC+ will be closely watched by consumers and industries around the world. An extension of the production cuts could lead to higher gasoline prices at the pump, impacting transportation costs and potentially contributing to inflationary pressures. Conversely, a relaxation of the cuts could see a decline in oil prices, providing some relief to consumers but potentially impacting the revenues of OPEC+ member states.
The outcome of the OPEC+ meeting will have significant implications for the global oil market in the coming years. The group's decision will be a delicate balancing act between maintaining market stability, addressing the needs of its member states, and navigating the evolving dynamics of the US shale oil industry.