2 weeks ago
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Eight members of the OPEC+ alliance of oil-exporting countries decided on Thursday to put off increasing oil production as they face weaker-than-expected demand and competing production from non-allied countries — factors that could keep oil prices stagnant into next year.
The OPEC+ members decided at an online meeting to postpone production increases that had been scheduled to take effect on January 1. The plan had been to start gradually restoring 2.2 million barrels per day over the course of 2025.
That process will now be pushed back to April 1, 2025 and production increases will gradually take place over 18 months until October 2026.
OPEC+, which includes Saudi Arabia as the dominant member of the Organization of the Petroleum Exporting Countries cartel of oil producers, and Russia as the leading non-OPEC member in the 22-country alliance, have imposed several sets of cuts to agreed output to support prices.
Oil prices have been slack due to weaker-than-expected demand from China, as well as increased production from countries like Brazil and Argentina that aren’t in OPEC+.
Oil analysts have been busy reducing their estimates for demand for next year, meaning that OPEC+ could remain in a bind well into 2025.
The Saudis need oil revenue to carry out Crown Prince Mohammed Bin Salman’s ambitious plans to diversify his country’s economy, including the development of Neom, a US$500-billion futuristic city in the desert. For Russia, oil export revenues are a key pillar of state finances and funding for the war against Ukraine. Holding back production risks losing market share. Yet increasing production and sales could lower prices in a global economy that analysts say is already well supplied with oil.
US oil has been stuck around US$70 per barrel for weeks and traded little changed at US$68.75 on Thursday after the announcement, down from US$80 in August. International benchmark Brent crude traded at US$72.57 per barrel, down from around US$80 in July.
US oil price levels of US$70 or less “are great for consumers”, said AAA spokesman Andrew Gross. Crude oil makes up about half the price of a gallon of gasolene, making crude the key factor on top of distribution costs and taxes in the US. Motorists in Europe see far smaller fluctuations because taxes make up a much bigger chunk of the cost.
OPEC has cut its forecast for 2025 demand growth to 1.54 million barrels per day, from 1.85 million barrels per day in July. That is at the high end of estimates, compared to those from the International Energy Agency at 990,000 barrels per day, US Energy Information Administration at 1.22 million, and energy intelligence firm Rystad Energy at 1.1 million.
Analysts at Commerzbank foresee Brent prices averaging US$75 per barrel in the first quarter of next year and US$80 for the remaining three quarters.
Treasury Secretary nominee Scott Bessent has put together an economic plan with the goal of increasing domestic oil production by the equivalent of three million barrels a day under the incoming Trump administration. Bessent has suggested that the additional oil production would reduce inflationary pressures for US consumers. But the Trump team has not fully outlined why oil producers would ramp up supplies and lower prices to levels that could hurt their profits.
The Organization of the Petroleum Exporting Countries is an inter-governmental body founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. It has since expanded to 12 member countries. In 2016, largely in response to dramatically falling oil prices due to US shale oil output, OPEC signed an agreement with 10 other oil-producing countries to create OPEC+.
– AP
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