OPEC+ pushes back production rollback to December
In an effort to combat the persistent decline in global oil prices, the Organization of Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, have announced a decision to delay the rollback of their production cuts. The original plan, which was set to take effect in October 2024, has been postponed until December 2024, according to a statement issued after a virtual meeting held last week.
The delay, which involves maintaining voluntary cuts of 2.2 million barrels per day (bpd) through November 2024, is aimed at stabilizing the volatile crude oil market. With global oil prices under pressure due to sluggish economic growth in China and the potential recovery of Libyan production, OPEC+ ministers opted to extend the cuts, providing more time for market conditions to improve. This move will phase in production increases starting in December and continue gradually through to the end of 2025.
OPEC+, which includes major oil producers like Saudi Arabia, Russia, and the UAE, had initially planned to begin slowly reintroducing volumes from eight key members—Saudi Arabia, Kuwait, Algeria, Oman, Kazakhstan, Iraq, Russia, and the UAE—in October 2024. The phased process was intended to restore 190,000 bpd in production by the end of the year. However, the deteriorating market conditions prompted OPEC+ to take a more cautious approach, extending the current cuts through November and starting the rollback process in December instead.
The alliance announced that it will add a collective 189,000 bpd in December 2024, with an additional 207,000 bpd expected in January 2025. This measured approach allows OPEC+ the flexibility to pause or reverse adjustments based on market performance. OPEC also left the door open for further revisions if global oil demand weakens or unexpected oversupply conditions emerge.
“The decision was the result of extensive discussions over several days,” a source from &P Global Commodity Insights noted. Ministers carefully weighed the potential market reaction to increased production and decided that extending the cuts would better support prices in the near term.
Oil prices have been on a downward trajectory in recent months, losing much of the gains made earlier in the year. This drop is driven largely by economic concerns in China, the world’s largest oil importer, where a sluggish economic outlook has dampened demand. Additionally, the possibility of Libya ramping up production following a recent resolution to a political standoff has added further downward pressure on prices.
On the day of the OPEC+ announcement, Brent crude, the global oil benchmark, briefly rose before falling back to a 15-month low of $73.16 per barrel. By the end of trading, Brent settled at $75.04 per barrel, down 0.25% from the previous day and marking the lowest price since December 2023. Market reactions to the OPEC+ decision were largely muted, with traders showing little optimism that the delay would be enough to counteract weak demand and potential oversupply.
One of the key issues facing OPEC+ has been overproduction by some of its member states. Iraq and Kazakhstan, in particular, have been producing above their quotas, with Iraq exceeding its limit by 321,000 bpd and Kazakhstan by 95,000 bpd in July 2024. This overproduction has undermined the alliance’s efforts to stabilize the market and has led to compliance concerns.
Both countries have faced pressure from other OPEC+ members to adhere to their production targets. In response, Iraq and Kazakhstan submitted compensation plans to offset their overproduction, pledging to fully comply by September 2025. The group reiterated that all excess volumes produced by these nations will be compensated for, including overproduction during August 2024.
Despite these compliance issues, OPEC+ remains committed to its overall goal of balancing the oil market. In its latest statement, the group reaffirmed its resolve to ensure that member countries meet their production quotas and contribute to stabilizing prices.
The global oil market is currently facing a delicate balance between supply and demand. OPEC’s August oil market report projected that demand for OPEC+ crude would outstrip supply in the coming quarters. The organization expects the “call” on OPEC+ crude—essentially the amount of oil the market needs OPEC+ to produce to maintain equilibrium—to rise in late 2024 and early 2025.
According to OPEC’s estimates, demand for its crude is expected to reach 43.8 million bpd in the fourth quarter of 2024 and 42.6 million bpd in the first quarter of 2025. These figures are significantly higher than the 40.9 million bpd that OPEC+ produced in July, as measured by secondary sources, including the Platts OPEC+ Survey.
However, despite the potential for higher demand, OPEC+ remains cautious about increasing production too quickly, fearing that any sudden influx of oil onto the market could drive prices down further. The group’s decision to delay its production rollback until December reflects a desire to carefully manage supply in response to evolving market conditions.
One of the major external factors influencing OPEC+’s decision-making has been the situation in Libya. In late August, Libya’s eastern faction shut down much of the country’s oil production in response to political tensions with the western government in Tripoli. This shutdown took 63% of Libya’s crude production offline, sparking concerns about a potential supply shortage.
However, a United Nations-led negotiation between the two factions on September 3 resulted in a tentative resolution, raising hopes that Libyan production could soon resume. The market responded to these developments with a sell-off, as traders anticipated an increase in global oil supply.
In addition to Libya, China’s slowing economic growth has had a significant impact on global oil prices. With the Chinese economy showing signs of weakness, demand for crude oil has softened, contributing to the downward pressure on prices. OPEC+ is closely monitoring the situation, as China is a key driver of global oil demand.
OPEC+ is scheduled to meet again on December 1, 2024, in Vienna for its next ministerial meeting. By that time, the group will have a better understanding of how market conditions have evolved and whether its decision to delay the production rollback was successful in stabilizing prices. The meeting will also coincide with the start of the phased reintroduction of production volumes.
Until then, OPEC+ members are expected to continue monitoring the market closely and adjusting their strategies as necessary. The group has emphasized its willingness to remain flexible and responsive to changes in market conditions, signaling that further delays or production cuts could be implemented if prices continue to fall.
OPEC+ finds itself at a critical juncture as it seeks to navigate the challenges of a volatile oil market. By delaying its planned production rollback to December, the group is taking a cautious approach aimed at supporting prices and ensuring that supply does not outpace demand.
While the delay provides temporary relief, the road ahead remains uncertain. Factors such as China’s economic performance, Libya’s production capacity, and the compliance of member states like Iraq and Kazakhstan will continue to shape the global oil market in the months to come. OPEC+’s ability to adapt to these challenges will be key to maintaining stability in the market and preventing further price declines.
